Legislature(1997 - 1998)
02/07/1997 08:06 AM House CRA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
February 7, 1997
8:06 a.m.
MEMBERS PRESENT
Representative Ivan Ivan, Chairman
Representative Fred Dyson
Representative Scott Ogan
Representative Joe Ryan
Representative Jerry Sanders
Representative Al Kookesh
Representative Reggie Joule
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
Presentation: Draft Federal Fiscal Year
1997 Community Services Block
Grant State Plan
*HOUSE BILL NO. 70
"An Act relating to housing assistance provided by the Alaska
Housing Finance Corporation and to its rural housing programs, to
the corporation's supplemental housing development grants to
regional housing authorities, and to housing programs of regional
housing authorities; permitting regional housing authorities to
make, originate, and service loans for the purchase and development
of residential housing; amending definitions relating to various
housing programs; and providing for an effective date."
- PASSED HB 70 OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 70
SHORT TITLE: AHFC HOUSING FUNDS & PROGRAMS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
01/15/97 67 (H) READ THE FIRST TIME - REFERRAL(S)
01/15/97 67 (H) C&RA, LABOR AND COMMERCE, FINANCE
01/15/97 68 (H) ZERO FISCAL NOTE (REV)
01/15/97 68 (H) GOVERNOR'S TRANSMITTAL LETTER
02/07/97 (H) CRA AT 8:00 AM CAPITOL 124
02/07/97 261 (H) CRA RPT 4DP 1NR 1AM
02/07/97 262 (H) DP: JOULE, IVAN, RYAN, KOOKESH
02/07/97 262 (H) NR: SANDERS
02/07/97 262 (H) AM: OGAN
02/07/97 262 (H) ZERO FISCAL NOTE (REV) 1/15/97
02/07/97 262 (H) REFERRED TO LABOR & COMMERCE
WITNESS REGISTER
JONATHAN SOLOMON SR.
Box 98
Fort Yukon, Alaska 99740
Telephone: (907) 346-2975
POSITION STATEMENT: Supported State Draft Plan
1997 Community Services Block Grant
DAVID FISON
6800 O'Malley Road
Anchorage, Alaska 99516
Telephone: (907) 346-2975
POSITION STATEMENT: Supported State Draft Plan
1997 Community Services Block Grant
ANDREW EBONA
P.O. Box 22129
Juneau, Alaska 99802
Telephone: (907) 364-2901
POSITION STATEMENT: Supported State Draft Plan
1997 Community Services Block Grant
JO COOPER, Program Coordinator
Community Services Block Grant Program
Department of Community & Regional
Affairs
209 Forty Mile Avenue
Fairbanks, Alaska 99701
Telephone: (907) 452-4468
POSITION STATEMENT: Supported State Draft Plan
1997 Community Services Block Grant
JEANINE KENNEDY, Executive Director
Rural Cap
731 East 8th Avenue
Anchorage, Alaska 99501
Telephone: (907) 279-2511
POSITION STATEMENT: Supported State Draft Plan
1997 Community Services Block Grant
CALVIN SIMEON
Association of Village Council Presidents
P.O. Box 219
Bethel, Alaska 99559
Telephone: (907) 543-3521
POSITION STATEMENT: Supported State Draft Plan
1997 Community Services Block Grant
JALENE JOHNSONS
10649 Ridgemont Drive, Number 133
Anchorage, Alaska 99507
Telephone: (907) 522-5579
POSITION STATEMENT: Supported State Draft Plan
1997 Community Services Block Grant
JOHN BITNEY, Legislative Liaison
Alaska Housing Finance Authority
520 East 24th
Anchorage, Alaska 99519
Telephone: (907) 586-3587
POSITION STATEMENT: Testified on HB 70
BRUCE KOVARIK, Executive Director
Bering Straits Regional Housing Authority
P.O. Box 995
Nome, Alaska 99762
Telephone: (907) 443-5256
POSITION STATEMENT: Testified on HB 70
KAY MURPHY, Mortgage Operations Director
Alaska Housing Finance Corporation
520 East 34th Street
Anchorage, Alaska 99503
Telephone: (907) 564-9315
POSITION STATEMENT: Testified on HB 70
DON FANCHER, Executive Director
Association of Village Council Presidents
P.O. Box 219
Bethel, Alaska 99559
POSITION STATEMENT: Testified on HB 70
ACTION NARRATIVE
TAPE 97-5 , SIDE A
Number 014
CHAIRMAN IVAN IVAN called the House Community and Regional Affairs
Standing Committee meeting to order at 8:07 a.m. Members present
at the call to order were Representatives Sanders and Ryan.
Representatives Kookesh, Joule and Ogan joined the proceedings at
the respective times: 8:07 a.m., 8:12 a.m. and 8:15 a.m.
Representative Dyson was absent.
CHAIRMAN IVAN outlined the business before the committee, the first
being the Draft Federal Fiscal Year 1997 Community Services Block
Grant State Plan and the second, HB 70, the Alaska Household
Finance Corporation Housing Funds and Program.
Number 184
JONATHAN SOLOMON testified by teleconference from Anchorage on the
Draft State Plan. In 1968, he testified on funding for RurAL CAP
(a component of the plan) which is a program that deals with child
care and child care development. Part of the funding which goes to
RurAL CAP helps to host a conference on alcohol and drug abuse
prevention. They also support the subsistence movement within the
state. He also said something about amendments to the migratory
bird treaty. He noted again funding for the Village Participation
Conference that takes place in Juneau every year. They bring
village people to this forum to talk about the issues and to meet
with their legislators. This is one of the only chances these
rural people have to meet with their representatives. He supports
the funding for this RurAL CAP program.
Number 422
DAVID FISON testified by teleconference from Anchorage on the Draft
State Plan. He is a retired United Methodist pastor and has lived
in Alaska for 36 years. He is a member of the board of directors
for RurAL CAP, representing the private sector. He represents the
Alaska Christian Conference which is an ecumenical body of 12 main
line Protestant and Roman Catholic denominations. This
organization has worked with RurAL CAP through the board for over
30 years. He has been this representative for the past six years.
Through the board, Mr. Fison serves on an administration and
finance committee. He knows of no other organization which has had
a more positive impact on rural Alaska citizens than RurAL CAP. He
urged support of this plan.
Number 542
ANDREW EBONA, Alaska Native Brotherhood Grand Camp, RurAL CAP Board
of Directors, testified on the state block grant plan. He gave the
Brotherhood's whole hearted support for the funding of the
Community Services Block Grant (CSBG) program for the rural
community action program. RurAL CAP is a multi-agency organization
and operates a number of programs throughout rural Alaska,
including the areas of child development and child care; community
development; subsistence; village participation conference; the
catalogue Aurora Expressions for Alaska; weatherization; and Rural
Energy Enterprises. The agency has a total annual budget of over
$13 million and employs about 250 people statewide. The majority
of the funds that come to the agency are used in the child
development and child care area. This program employs about 150
people. They assist over a 1000 children and families statewide.
It's a critical program for communities in the rural areas. They
support and endorse the programs in this area and the other
programs that RurAL CAP funds.
Number 715
JO COOPER, Program Coordinator, Community Services Block Grant
Program, Department of Community & Regional Affairs, testified by
teleconference from Fairbanks in support of the state block grant
plan. She stated that the purpose of this hearing was to accept
comments from the public on the proposed use of the funds for the
upcoming year. By federal regulation the majority of funds, with
the exception of five percent administrative amount that the state
takes, the rest of the funds are distributed to RurAL CAP which is
the only community action agency in the state of Alaska. RurAL CAP
utilizes the funds throughout the state in basically seven program
areas and she listed these again for the committee. For each of
these, the manner in which the funds are used is described in the
draft plan distributed to the committee.
MS. COOPER stated that both the department and RurAL CAP place a
strong emphasis with this program on promoting maximum
participation by rural people in the elimination of the cause and
conditions of poverty.
Number 829
CHAIRMAN IVAN asked about the $13 million funding for the program
with 250 employees, especially in the child care area, and how much
of this money went to the salaries of the executive director and
other people in the top administration.
Number 874
MS. COOPER responded that in the up-coming year they don't know
exactly what the appropriation will be. It varies from year to
year, but they anticipate roughly for the CSGB portion, RurAL CAP
will receive roughly $1.8 million next year. In each of the
components referenced in the plan's child development section there
is a budget pace that indicates how much for this component goes to
personnel, to travel, to building space, etc.
Number 938
JEANINE KENNEDY, Executive Director, RurAL CAP, testified by
teleconference from Bethel in support of the state block grant
plan. The CSGB represents about a tenth of the agency funding and
the administrative salaries come out of the administration budget.
Throughout the agency, every grant that they get includes a certain
percentage, about 15 percent to 18 percent, to the administration.
Their total administration budget is $1.3 million.
Number 1022
CALVIN SIMEON, Association of Village Council Presidents, testified
by teleconference from Bethel. He stated that he wanted to testify
solely to the subsistence component of the Community Services Block
Grant Plan. He works in the subsistence department of the
Association of Village Council Presidents as the director of this
program. RurAL CAP plays a very important role statewide in
bringing together people, such as himself, to discuss subsistence
issues and to access information in order to build consensus. This
is an issue which is very important for the native people to reach
a consensus on.
MR. SIMEON stated that one of the subsistence groups RurAL CAP
provides staff support to is the Rural Alaska Resources Association
(RARA). RARA is composed of representatives from each of the
regional non-profits. The opportunity to share information, access
and discuss issues and to reach consensus on issues of mutual
concern is extremely important to them. It is helpful for him to
go to a meeting where people from the villages and from the
regional non-profits get to discuss concerns and promote the
continuation of subsistence. This is a positive way for people to
be involved in decision making and to develop networks. He
stressed how important the issue of subsistence was.
MR. SIMEON noted that as welfare reform is beginning to be
implemented, subsistence will become even more important to sustain
in order to nourish native families. Through the subsistence
department RurAL CAP supports efforts of a number of groups
including the Indigenous Survival International, an international
group which works to defend the native peoples rights to hunt and
trap. The animal rights groups have impacted very heavily the
rights and abilities of their native people to continue to trap and
sell fur. The Indigenous Survival International enables native
people to get together to discuss strategies and to heighten
people's awareness of how destructive the animal rights people's
agenda often is. The Rural Alaska Community Action Program has
been instrumental in providing staff support to the all the various
marine mammal groups in Alaska who meet together to make decisions
about issues that impact them as a group. The Indigenous People's
Council on Marine Mammals has been very successful in promoting and
providing a more meaningful voice for users of marine mammals all
along the coast.
Number 1180
MR. SIMEON acknowledged another statewide coalition supported by
RurAL CAP is the working group on migratory birds. The Yukon
Kuskokwim Region plays a very large role in advocating for
legalization of the of taking of eggs in spring and for spring
hunting. This information was shared with all members of the
working group across the state. RurAL CAP works in collaboration
with regional and village groups to protect and maintain the right
of people to continue subsistence. The Community Services Block
Grant enables people to be involved in making decisions and to work
in collaboration.
Number 1246
REPRESENTATIVE OGAN asked if there was a component in the budget
for this subsistence portion.
MS. KENNEDY said that this information was on page 81 of the
Community Services Block Grant Plan.
Number 1294
CHAIRMAN IVAN referred to previous testimony regarding a
weatherization program and asked if this was itemized in this block
grant.
MS. KENNEDY stated weatherization provides for a secretarial pool
to all the programs in the agency. Additionally, under emergency
services they will allocate some of the funds for the food and
shelter for people in emergency situations. Sometimes they use
these funds in rural communities when houses burn down. The
weatherization department goes into a community and collaborate
with housing authorities in whatever region and help homeowners by
repairing houses if this is possible. Otherwise, weatherization
funds come from the Alaska Housing Finance Corporation through an
application process.
Number 1390
JALENE JOHNSONS testified by teleconference from Anchorage on
the Child Development Center. She stated that her son has attended
the RurAL CAP Child Development program for a little more than a
year and she's very thankful for the program because she can attend
school and doesn't worry about him. She appreciates the support
given to her individually and the care given to all the children
through the center's team effort. She recommends it to everyone
she comes into contact with.
Number 1444
CHAIRMAN IVAN noted that there was no action necessary for the
committee to take on this presentation. He stated that he
appreciated the informative comments made by the Executive Director
of RurAL CAP and the other individuals who testified in support of
the program.
HB 70 - AHFC HOUSING FUNDS & PROGRAMS
Number 1528
JOHN BITNEY, Alaska Housing Finance Authority, came forward to
testify on HB 70. This bill passed the house last year 37 to 1,
moved through some senate committees and didn't pass for some lack
of time, along with other considerations. In summary, this
legislation is an attempt to try and improve some of their loan
programs to enhance efforts in rural Alaska to provide loans there
for housing.
MR. BITNEY provided a short summary of this legislation's main
features. It designates the Regional Housing Authorities to be a
servicing agency and an offerer for some of their loan programs.
They want to use some of the Housing Authorities' expertise in
making some of these loans in these communities. This is also an
attempt to improve and modify a building materials loan program in
order to meet the needs and conditions in the rural areas. They
also hope to provide the re-financing of loans.
MR. BITNEY stated that there were other technical changes in the
bill. He believed there was a sectional summary analysis, as well
as some backup provided to show some of the needs in these
communities. This legislation also has a zero fiscal note.
Number 1670
REPRESENTATIVE OGAN referred to page 2, line 3 and asked about the
language, "...in a small community," where the word "make" was the
original language and he noted the addition of the words "originate
and service loans." He noticed that along with this change the
legislation had a fiscal note attached to it. He stated there
should be costs associated with this legislation and that it must
come out of Alaska Housing funds which is an off budgeted item. He
asked if this was correct.
MR. BITNEY stated that this part of the section allows Regional
Housing Authorities to begin offering their mortgage programs.
Presently, Alaska Housing gets authorization to operate their
mortgage programs annually. In the operating budget, they have
become an on-budget item in the last year. This current fiscal
year is the first year that their mortgage programs are subject to
legislative review in appropriations. These programs are now on-
budget items. They estimate an overall yearly aggregate amount to
bring before the legislature for their mortgage activity. Section
1 provides the opportunity for Regional Housing Authorities to be
more active in promoting, serving and originating Alaska Housing
programs in these communities.
Number 1753
REPRESENTATIVE OGAN asked if the Regional Housing Authorities were
state agencies.
MR. BITNEY responded that these were not state agencies, but they
are established in state law and recognized statewide by boundary
lines designating Regional Housing Authorities. Not only will they
originate and service mortgage loans, but they will also be
administrators and a pass-through agency for federal Indian Housing
funds.
Number 1785
REPRESENTATIVE OGAN asked who pays their salaries.
MR. BITNEY stated that he believed there were Housing Authority
representatives on line and that they would be better prepared to
answer this question. He didn't believe that Alaska Housing paid
their salaries and noted there might be some administrative
allowances in the grant funds and such.
Number 1804
REPRESENTATIVE OGAN said he was looking at a zero fiscal note with
a loan program that essentially creates a bunch of work for a bunch
of loan officers and he was trying to figure out who would pay for
this.
CHAIRMAN IVAN said he could make some general comments to this
issue. His understanding is that the Regional Housing Authorities
exist throughout the state which was a federal program established
between the Regional Corporation boundaries and negotiated through
the Housing and Urban Development (HUD) program and Indian Housing.
These systems are already established and their support is
negotiated by indirect costs. He also shared his perspective as an
individual from the small community of Akiak. He stated stated
that in the past, AHFC funds were targeted to already built up
communities such as Anchorage with its already surveyed lots. With
communities such as Akiak without subdivisions, the banks would be
hesitant to deal with them. He understood and appreciated the
intent of this legislation which is to spread this same opportunity
to rural Alaska. He noted that not all of the villagers are on
welfare and, given the opportunity, they could take advantage of
the Housing Finance Corporation services.
Number 1934
REPRESENTATIVE KOOKESH said that he was familiar with the Tlingit
and Haida Housing Authority in Juneau and knew that a lot of the
money they receive is from HUD. As he understood it, there is no
money that will be used to service this plan other than the federal
monies received which is already budgeted.
Number 1960
REPRESENTATIVE RYAN said that he understood the purpose of this
legislation, but hoped there weren't different state programs
working at cross purposes. He noted within this legislation
exemptions from energy standards and the existence of a program
that gives people funds to help meet these energy standards while
upgrading their homes. He also offered that many people cannot get
financing on their houses because of their non-standard
construction characteristics. Then, when they do get financing,
the rates are very high since they don't meet code criteria. He
asked if they were encouraging this same sort of thing through this
program.
Number 2011
MR. BITNEY responded that the exemption in this bill only applies
to the building materials loan which is a loan program for someone
to get building materials for up-grades. The maximum limit on this
program is $20,000. They don't look to exempt any kind of finance
program for the construction of an entire home. In order to meet
energy standards, building standards, etc., it is necessary to fly
an inspector or a rater out to a village or remote site in order to
make sure that this work meets all these standards. With such a
small loan amount this inspection would create a large cost within
it.
Number 2062
REPRESENTATIVE OGAN asked if this program would apply to
communities, possibly in his district, of 1600 people or less. He
referenced language in the bill about a small community and
wondered what the limit was. He was concerned about a possible
disparity and fairness in this legislation. He asked what the
definition of community would be.
Number 2108
MR. BITNEY responded that the definition of a community is tied to
the second class boundaries. For example, the population center of
Palmer would be considered for this area and would not qualify. A
small community is defined as 1600 if it's connected on the road
system. Palmer exceeds the 1600 limit within it's municipal
boundaries. For those communities which meet this definition, the
statute allows the Rural Mortgage Program to charge up to one
percent lower than the taxable rate for those loans. This rate is
set monthly.
Number 2158
REPRESENTATIVE KOOKESH noted that this legislation made no
reference to native or non-native. He assumed that if someone is
in a rural area, whether they are native or not, they are eligible
to participate.
MR. BITNEY responded that this was correct. This legislation is
driven by the population definitions.
Number 2184
BRUCE KOVARIK, Executive Director, Bering Straits Regional Housing
Authority, testified by teleconference from Nome on HB 70. He is
a member and he chairs the legislative committee for the
Association of Alaska Housing Authorities. The Housing Authorities
also represent the Alaska Housing Finance Corporation. They too
support HB 70.
MR. KOVARIK stated that they support this bill because it helps
them do their job by supplying additional tools. It allows them to
more fully participate in the AHFC loan program. These are
traditions that are not well established in their villages, yet
they know how difficult it is to get funding whether federal or
state matching. These funds are scarce and they have over 300
families on waiting lists for housing.
MR. KOVARIK noted that "one real small change that this bill
provides for is with the supplemental housing grant long enough to
use grant funds, not just for on-site sewer and water, but also
off-site sewer and water." Despite the good intentions and the
desire they have for improving their sanitation facilities
throughout the state, it's still a struggle. The expectations or
cooperation they have with public health service or village safe
water the (indisc.) are not always there. Any barrier they can
break down to help them achieve these improvements for sanitation
facilities is helpful. To allow the supplemental housing grant
funds to be used for off-site as well as on-site water services
will be a big benefit.
MR. KOVARIK responded to Representative Ogan's question about the
salaries and administrative costs for this portion. The majority
of his salary for these costs come from the home buyers, people
from their region who participate in the housing program, buy their
homes and pay for them with their required monthly payments. Part
of these payments go into the operation and administration of the
housing authority. For the overall operations, they get very
little HUD money. This money usually goes into the development,
the hardware, the houses, etc. for families. Likewise with the
origination fees or the servicing of AHFC loans. The
administrative cost of the program comes from the borrower through
a percentage any where from a quarter to a half percent of the
payment as a servicing fee.
Number 2358
REPRESENTATIVE SANDERS asked if Mr. KovARIK was working on
commission.
MR. KOVARIK stated that, no, he was not. He outlined the regional
program there which has 441 houses under management. The Regional
Housing Authority has a contract with HUD who owns these houses,
along with the individual home buyer families. Part of the
required monthly payments in their region goes to fire insurance,
part of it goes to the operation of the Housing Authority, and part
of it goes into equities for the house. This is a home ownership
program and in addition to paying the operating costs, including
the housing authorities to administer these programs, it also
provides to the extent that the families are able to pay based on
family income. This program also maintains equity revolving funds
that revolve into new housing for the future. The little bit of
extra money that the family pays every month, over and above the
administrative costs, goes into an equity account. The Housing
Authority holds it in trust for a 25 year cycle and after this
time, this fund is available for new housing in this community. He
noted that this is how they work this program in their region.
Number 2443
REPRESENTATIVE RYAN stated that he was interested in what kind of
a financing structure they have invested in these homes and what
the interest would be on the money with all these other charges
added in. He asked what the total interest package would be and
how would it break out.
Number 2466
MR. BITNEY said that by originating and servicing the loans, the
Housing Authorities would have the same opportunity to charge a fee
on the loans, which is the same rate, same method that a bank in
the state does. This is the way their mortgages function.
TAPE 97-5, SIDE B
Number 000
KAY MURPHY, Mortgage Operations Director, Alaska Housing Finance
Corporation, testified on HB 70. In response to the issue about
how the Housing Authorities would be involved in originating Alaska
Housing Loans, Mr. Bitney correctly responded by stating that they
would act in the same capacity as existing lenders. Alaska Housing
Finance Corporation sets the interest rates based on what their
cost of funds would be. They change these rates on a monthly
basis. Their current cost of funds for taxable financing is 8 3/8
percent. Under their rural loan program, the borrowers get a 1
percent interest rate reduction from this. Today they're being
charged 7 3/8 percent.
MS. MURPHY responded to the issue regarding service expenses. The
servicing expenses of the corporation are an off-budget item, so
this does not impact the fiscal note for this particular bill. As
for a service fee paid to lenders, if it's a rural loan they pay
1/2 percent service fee, if it's an urban loan they take 3/8
percent service fee. The reason for the difference is because it
is more difficult and more costly to service loans in some of the
more remote, rural areas of the state. The way they account for
this is their income from the interest on the loan payments which
they would receive, the service fee is netted out of this income.
The way lending institutions, whether the Housing Authority or a
bank, earns money to offset the expense associated with origination
is in addition to that service fee they receive, they charge the
borrower an origination fee. This fee will vary depending on the
loan amount. As for the housing which Mr. Kovarik spoke about, she
believed that the financing, the cost and the rates charged on
these is related to their funding which they receive from HUD for
various types of housing. They are not necessarily related to loan
programs that this bill would allow them to be involved in.
Number 094
REPRESENTATIVE RYAN asked if these loans were being offered with a
variable interest rate to the borrower.
MS. MURPHY clarified that this was not a variable interest rate.
Once the borrower is committed to an interest rate, this rate is
fixed for the term of the loan, but their cost of funds is based on
what's happening in the bond market. They establish these rates on
a monthly basis depending on what's happening in various bond
markets, whether tax exempt, taxable or veteran. The borrower's
interest rate is fixed for the life of the loan.
REPRESENTATIVE RYAN said he understood the time value of money and
noted that seven and 3/8 was a very favorable rate. He asked if
the state of Alaska has a triple A rating or a double A?
MS. MURPHY said that there are some rating agencies where they have
a double A and she wasn't sure about the triple A.
Number 140
REPRESENTATIVE RYAN stated that they would be very close to the
marginal rate. He asked what the margin was and stated that it
couldn't be more than a 1/2 of a percent.
MS. MURPHY responded that he was absolutely right. They don't add
onto their cost of funds a high basis point for the administrative
cost or margin.
REPRESENTATIVE RYAN asked if this origination fee was a percentage
of the loan or if it was a flat fee?
Number 157
MS. MURPHY said that typically the lenders will charge a 1 percent
origination fee or a minimum of $750.00. Currently, in statute,
for the rural loan program, the origination fee is capped at 1
percent of the loan.
REPRESENTATIVE RYAN noted that the reason he wondered is because he
knew there was not a lot of money in the rural areas. It is
difficult at best for people with the expenses as high as they are,
it is difficult for people to put together long term financing.
Number 190
REPRESENTATIVE OGAN asked about the statement which Mr. Kovarik
made about his salary being paid by the people who get these loans.
He also referred to the testimony presented about the lack of a
high administrative fee. He expressed his concern that if they
expand this program they'd be expanding the cost to the federal
government. He said he was skeptical that they were not adding
costs to someone, somewhere, for this program. He asked what the
default rate was for this program.
Number 255
MS. MURPHY said she could speak for Alaska Housing and their rural
loan program. It is funded from a revolving loan fund that's been
established for years. The interest rates are set based on that
one percentage point less than their taxable cost of funds. The
revolving loan fund puts money out into the market at a particular
interest rate. All the payments received come back to the
corporation and are deposited back into this revolving loan fund.
From a business standpoint, the way they pay for their expenses is
the income that they earn from those mortgages which they make.
Number 301
REPRESENTATIVE OGAN asked if the interest pays for the cost of
doing business.
MS. MURPHY responded that they certainly believe so. Their
earnings received are either financial investments with liquid
assets or the interest income received from loans is probably the
major portion of the income producing assets of the corporation
which pays all of their expenses.
REPRESENTATIVE OGAN asked specifically if this particular program
pays for itself.
MR. BITNEY stated that yes it does.
Number 338
REPRESENTATIVE RYAN asked Mr. Bitney if his organization was
engaged in any form of arbitrage with their liquid assets?
MR. BITNEY stated that they do generate arbitrage, this is a budget
item included in the operating budget annually. They try to
establish low interest loan programs. They are required to set up
programs to loan this money out at low interest rates in order to
avoid paying a penalty back to the federal government.
Number 400
DON FANCHER, Executive Director, Association of Village Council
Presidents, Bethel, testified by teleconference from Anchorage.
They operate a mutual help program in their region. In this area
there are about 1200 home buyers. Their operating costs are
covered by these home buyer's monthly payments. This is important
legislation, not only because it helps provide matching grants that
leverage, say in their case, 10's of millions of dollars a year in
new development, in addition, it does help provide money in rural
areas where there is a desperate need to improve their water and
sewer needs, as well as utilities. The entitlement programs
through the federal government are being cut drastically and
they're being forced to operate like private businesses much akin
to what this legislation provides.
MR. FANCHER continued that their housing authority is entering into
private agreements with school districts, health corporations,
etc., to raise their own revenues to try and leverage more money in
order to pay their own way. There are no dollars spent on
administration even in the development of projects. It is true
that the users basically pay for this and that will become even a
greater requirement. At present, there are not very many housing
authorities which charge interest on this mutual help program. In
privatizing, they will have to leverage these federal and state
dollars with dollars they can raise on their own. Every little bit
helps.
MR. FANCHER added, "If we can service these loans, generate these
loans and raise a little bit, our own revenues and combining this
with creative programs, for example, and numerous other -- agencies
provide, for example, low income housing tax credit programs and
basically have to combine all of these various sources of revenues
to do what we can to try and meet the housing needs and it is very
desperate, not just in rural Alaska, but there are probably roughly
18,000 units needed in Alaska and the majority of those are needed
in rural Alaska. Because, as you know, lending institutions have
been very reluctant to allow any loans out in rural areas because
it is hard to go collect or evict and then get rid of the house."
Number 626
REPRESENTATIVE OGAN said that he had some basic problems with this
bill. Section 5 exempts the projects under the building loan
program from energy standards. "We have a program in place that
you can't be a general contractor unless you go through extensive
training on energy standards and then we're exempting loans under
this program from those." Section 6 exempts projects constructed
from construction standards. He then quoted part of this section
as well. Section 9 allows unsecured loans for borrowers with
either restrictive deed lands or with no title at all. He
seriously questioned whether the state should be in the business of
making loans on buildings with no title or with restrictive deeds.
He suspected under these provisions that they would see an increase
in defaults because of a lack of collateral, a lack of building
standards, and a lack of standards for energy. He stated that he
won't be supportive of the passage of this bill.
Number 700
MR. BITNEY noted that the exemptions of this legislation are in
place just for the building materials loan program. This program
is only for loans up to $20,000 to cover materials. Any kind of
construction or financing for a regular home and for any of their
other programs, these homes will still have to meet the standards
which Representative Ogan outlined. With this program, these
exemptions are included because the loan for materials is small.
Once someone does work on their home, if the project is required to
meet these standards, they are required to fly an inspector or a
rater into a village to inspect the project. The cost of the
flight and the fee for the inspector would constitute a fairly
substantial percentage of this small loan.
MR. BITNEY stated that the unsecured loans feature of this
legislation is unique to the rural areas because of the land that
is out there. The default rate for rural loans runs about equal to
urban loans. Yesterday, the 30 day delinquency rate was 6.5 for
rural and 6.2 for urban. Alaska Housing Finance is a profit making
corporation. There is an expectation on the corporation to
generate annual profits of net income of the corporation of
approximately $100 million which they split between giving back
money to the state and providing for capital expenditures. They
look to continue this effort and to make good paying loans.
Number 822
REPRESENTATIVE OGAN stated that he thought the intention of this
legislation was honorable. He worried about authorization of
$20,000 unsecured loans without inspections. He didn't see any
mechanism to keep people from, "Well, you know, I got the 20 grand,
you know, spend 5 on some materials to make it look like I'm doing
something and spend another 15 to buy a skiff or snow machine or
something. And, there's no collateral or -- it seems to me that
we're lowering the standards quite a bit with some of these
provisions." He said he would appreciate hearing anything to
alleviate these concerns.
Number 863
MS. MURPHY responded that the intent of the language to delete the
requirement for compliance with those particular state statutes
have come about as a result of the type of loans they have been
requested to provide financing for. The statutes regarding energy
standards and construction standards apply to any new construction
that started after (indisc.) December 31, 1991, and for the
construction inspections after June 30, 1992. They support, very
strongly, energy standards and construction standards for anyone
building a new house. It's in the borrowers best interest, as well
as the corporation's best interest to comply with the minimum
energy standards in the building inspection. The way the statutes
are written for the construction inspection is there has to be five
different inspections during construction. She gave a rundown of
what these were. In a lot of cases, these various inspections
don't apply to these small loans that are used to buy materials to
repair a roof, install a new well, etc.
MS. MURPHY continued in response to the scenario purchase of a boat
with this loaned money. She stated that these are direct loans
from the corporation. They disburse the funds based on percentages
of completion of the project. They require evidence from the
borrower to show the materials purchased. If it's in an area where
they know an individual is available to look at the project for
them, they require an inspection report. They don't make a $20,000
loan and write a check to the borrower. These funds are put in a
controlled account and as the work proceeds, they disburse the
funds, either to the borrower or to the borrower and the supplier
who provided the materials. They require an estimate of costs,
plans for what the improvements are, etc. They inspect the project
when it's completed.
Number 1025
REPRESENTATIVE JOULE commented that this legislation provides an
opportunity for people to fix up their current situation by doing
the work themselves while not worrying about high costs. This
allows them to make these improvements at a rate they can afford.
$20,000 for people in rural areas and the hub communities goes a
long way to make the living conditions better. This also lessens
the demand of further requests for federal housing and other
things.
Number 1086
REPRESENTATIVE KOOKESH stated that one of the nice things about
being in urban Alaska is that there are banks available, along with
available jobs and that needs are met when there are housing
problems. He said it's good to take care of Alaska as a whole and
to not just think of the sections of the state that they represent.
Alaska will be a better place if they all make it a better place.
Rural Alaska is as much a part of Alaska as urban Alaska. As small
as this program is, it will benefit Alaskans. He felt they needed
to encourage this type of development in Alaska because it makes
Alaska a better place for everyone.
Number 1132
CHAIRMAN IVAN made a closing remark concerning the legislation
before them. He believed that this legislation will extend the
opportunity for individuals to have pride and responsibility in
taking care of themselves. They are there to stay. Everybody else
in the community realizes that if an individual takes advantage of
this program it extends opportunity and responsibility to
individuals in the entire area of the state.
Number 1177
REPRESENTATIVE RYAN moved and asked unanimous consent to move HB 70
out of committee with individual recommendations and accompanying
zero fiscal note. Hearing no objection, HB 70 was moved out of the
House Community and Regional Affairs committee.
ADJOURNMENT
CHAIRMAN IVAN adjourned the House Standing Community and Regional
Affairs Committee at 9:20 a.m.
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