Legislature(1999 - 2000)

02/08/2000 08:15 AM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
        HOUSE COMMUNITY AND REGIONAL AFFAIRS                                                                                    
                 STANDING COMMITTEE                                                                                             
                  February 8, 2000                                                                                              
                     8:15 a.m.                                                                                                  
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Representative John Harris, Co-Chairman                                                                                         
Representative Andrew Halcro                                                                                                    
Representative Lisa Murkowski                                                                                                   
Representative Fred Dyson                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
Representative Carl Morgan, Co-Chairman                                                                                         
Representative Reggie Joule                                                                                                     
Representative Albert Kookesh                                                                                                   
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
HOUSE BILL NO. 304                                                                                                              
"An Act relating to issuance and sale of revenue bonds to fund                                                                  
drinking water projects, to creation of an Alaska clean water                                                                   
administrative fund and an Alaska drinking water administrative                                                                 
fund, to fees to be charged in connection with loans made from the                                                              
Alaska clean water fund and the Alaska drinking water fund, and to                                                              
clarification of the character and permissible uses of the Alaska                                                               
drinking water fund; amending Rule 3, Alaska Rules of Civil                                                                     
Procedure; and providing for an effective date."                                                                                
                                                                                                                                
     - MOVED OUT OF COMMITTEE                                                                                                   
                                                                                                                                
PREVIOUS ACTION                                                                                                                 
                                                                                                                                
BILL: HB 304                                                                                                                    
SHORT TITLE: CLEAN WATER FUND/DRINKING WATER FUND                                                                               
                                                                                                                                
Jrn-Date    Jrn-Page           Action                                                                                           
 1/21/00      1969     (H)  READ THE FIRST TIME - REFERRALS                                                                     
 1/21/00      1969     (H)  CRA, JUD, FIN                                                                                       
 1/21/00      1969     (H)  FISCAL NOTE (DEC)                                                                                   
 1/21/00      1969     (H)  ZERO FISCAL NOTE (REV)                                                                              
 1/21/00      1969     (H)  GOVERNOR'S TRANSMITTAL LETTER                                                                       
 1/21/00      1969     (H)  REFERRED TO COMMUNITY & REGIONAL                                                                    
                            AFFAIRS                                                                                             
 2/08/00               (H)  CRA AT  8:00 AM CAPITOL 124                                                                         
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
DAN EASTON, Director                                                                                                            
Division of Facility Construction & Operation                                                                                   
Department of Environmental Conservation                                                                                        
410 Willoughby Avenue, Suite 105                                                                                                
Juneau, Alaska 99801-1795                                                                                                       
POSITION STATEMENT:  Presented HB 304 and answered questions.                                                                   
                                                                                                                                
MIKE BURNS, Program Manager                                                                                                     
Municipal Grants & Loans                                                                                                        
Division of Facility Construction & Operation                                                                                   
Department of Environmental Conservation                                                                                        
555 Cordova Street                                                                                                              
Anchorage, Alaska 99501-2617                                                                                                    
POSITION STATEMENT:  Answered questions concerning HB 304.                                                                      
                                                                                                                                
CRAIG TILLERY, Assistant Attorney General                                                                                       
Environmental Section                                                                                                           
Civil Division                                                                                                                  
Department of Law                                                                                                               
1031 West 4th Avenue, Suite 200                                                                                                 
Anchorage, Alaska 99501-1994                                                                                                    
POSITION STATEMENT:  Offered clarification with regard to who                                                                   
qualifies for these loans.                                                                                                      
                                                                                                                                
LARRY HANCOCK, City Manager                                                                                                     
City of Cordova                                                                                                                 
P.O. Box 1210                                                                                                                   
Cordova, Alaska 99574                                                                                                           
POSITION STATEMENT:  Testified that the City of Cordova strongly                                                                
supports the passage of HB 304.                                                                                                 
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 00-7, SIDE A                                                                                                               
Number 0001                                                                                                                     
                                                                                                                                
CO-CHAIRMAN called the House Community and Regional Affairs                                                                     
Standing Committee meeting to order at 8:15 a.m.  Members present                                                               
at the call to order were Representatives Harris, Halcro, Murkowski                                                             
and Dyson.  Representatives Morgan, Joule and Kookesh were not in                                                               
attendance.                                                                                                                     
                                                                                                                                
HB 304-CLEAN WATER FUND/DRINKING WATER FUND                                                                                     
                                                                                                                                
CO-CHAIRMAN HARRIS announced that only order of business before the                                                             
committee would be HOUSE BILL NO. 304, "An Act relating to issuance                                                             
and sale of revenue bonds to fund drinking water projects, to                                                                   
creation of an Alaska clean water administrative fund and an Alaska                                                             
drinking water administrative fund, to fees to be charged in                                                                    
connection with loans made from the Alaska clean water fund and the                                                             
Alaska drinking water fund, and to clarification of the character                                                               
and permissible uses of the Alaska drinking water fund; amending                                                                
Rule 3, Alaska Rules of Civil Procedure; and providing for an                                                                   
effective date."                                                                                                                
                                                                                                                                
Number 0083                                                                                                                     
                                                                                                                                
DAN EASTON, Director, Division of Facility Construction &                                                                       
Operation, Department of Environmental Conservation (DEC),                                                                      
commented that HB 304 is an exciting piece of legislation, which is                                                             
part of a package that also proposes some changes in regulation.                                                                
This combination of legislation and regulation amendments would                                                                 
make some substantial changes to how the loan programs are                                                                      
operated.  He informed the committee that HB 304 has the following                                                              
two objections.  One objective is to save the state $1.5 million                                                                
each year, in general funds (GF).  The other objective is to make                                                               
water and waste water loan programs self-supporting.                                                                            
                                                                                                                                
REPRESENTATIVE DYSON moved to open the hearing on HB 304.  There                                                                
being no objection, HB 304 was before the committee.                                                                            
                                                                                                                                
Number 0340                                                                                                                     
                                                                                                                                
MR. EASTON informed the committee that "we" [Division of Facility                                                               
Construction & Operation, DEC] operate two loan programs, which                                                                 
make loans to communities to build water and waste water projects.                                                              
These two loan funds are similar to the permanent fund in that they                                                             
were created in statute and accounted for separately in the funding                                                             
for the treasury.  He pointed out that money comes from three                                                                   
sources.  The primary source of funding is the yearly grant from                                                                
the U.S. Environmental Protection Agency (EPA), which must be                                                                   
matched on a 5:1 basis.  Currently, that grant is being matched                                                                 
with state general funds, which amounts to $7.5 million for the                                                                 
Drinking Water Fund and $8 million for the Clean Water Fund.                                                                    
Therefore, $1.5/$1.6 million would come from the state GF.  Before                                                              
the funds are loaned, the funds earn interest.  He explained that                                                               
money is taken out of the fund to loan to communities to build                                                                  
clean water and/or waste water projects.  Upon completion of the                                                                
project, the community repays the loan with interest.  Therefore,                                                               
the money returns to the fund.                                                                                                  
                                                                                                                                
REPRESENTATIVE DYSON inquired as to the difference between the                                                                  
Clean Water Fund and the Drinking Water Fund.                                                                                   
                                                                                                                                
MR. EASTON explained that the Clean Water Fund loans money for                                                                  
waste water projects while the Drinking Water Fund loans money for                                                              
drinking water projects.  He further explained that the Clean Water                                                             
Fund does not include drinking water because the fund was                                                                       
established under the federal Clean Water Act, which primarily                                                                  
deals with waste water.                                                                                                         
                                                                                                                                
MR. EASTON pointed out that HB 304 has two parts.  Sections 1-17                                                                
deal with providing the agency bonding authority for the Drinking                                                               
Water Fund.  The agency already has such authority for the Clean                                                                
Water Fund.  The second part of HB 304, Sections 18-22, deal with                                                               
providing the agency the authority to establish a long-term way to                                                              
pay for the program's operating costs.                                                                                          
                                                                                                                                
MR. EASTON addressed the portion of the legislation which deals                                                                 
with the bonding authority.  He referred to a diagram entitled,                                                                 
"Proposed Fund Capitalization Process" which is similar to the                                                                  
diagram entitled, "Existing Fund Capitalization Process."  The                                                                  
difference is that under the proposed fund capitalization process                                                               
there is an option with regard to the $1.5/$1.6 million that comes                                                              
into the loan funds under the existing fund capitalization process.                                                             
He explained that the option under the proposed fund capitalization                                                             
process would allow the following.  With bonding authority and                                                                  
enough interest in the loan fund, interest earnings could be taken                                                              
out of the fund and used to retire bond debt.  Furthermore, those                                                               
bond proceeds could actually be used to supplant the state GF                                                                   
match.  Mr. Easton clarified that with bonding authority the state                                                              
agency would sell bonds for $1.5 million and use the bond proceeds                                                              
for a match.  Then the interest earnings would be taken from the                                                                
fund to retire the bond debt.  Therefore, the bonding mechanism                                                                 
would replace the need for the $1.5 million in GF each year for                                                                 
each of the loan funds.                                                                                                         
                                                                                                                                
CO-CHAIRMAN HARRIS asked if, every year, the agency spends all the                                                              
money it receives from both the state match and the federal grant,                                                              
plus administration.                                                                                                            
                                                                                                                                
MR. EASTON replied yes.                                                                                                         
                                                                                                                                
CO-CHAIRMAN HARRIS surmised then that the balance in the fund at                                                                
the end of every year is zero.                                                                                                  
                                                                                                                                
MR. EASTON clarified that there is always some money in the fund                                                                
that has been returned to the fund and has not yet been loaned out                                                              
and/or grant money that has not yet been loaned out.  There is                                                                  
always a balance in the fund.  He agreed with Co-Chairman Harris'                                                               
assessment that this is not grant money to communities but rather                                                               
a loan.                                                                                                                         
                                                                                                                                
CO-CHAIRMAN HARRIS surmised then that the principal in interest                                                                 
being paid is being funneled back into the fund.  He asked if Mr.                                                               
Easton projected to earn enough interest off the return investment                                                              
in order to pay the bond every year.                                                                                            
                                                                                                                                
MR. EASTON answered yes.                                                                                                        
                                                                                                                                
Number 0857                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON inquired as to the fate of those communities                                                               
that need clean water or waste water treatment, but do not have the                                                             
resources to repay.                                                                                                             
                                                                                                                                
MR. EASTON emphasized that this is one program, a loan program.                                                                 
There are also two grant programs.  One of the grant programs                                                                   
serves the larger communities while the village safe water program                                                              
serves the smaller communities.                                                                                                 
                                                                                                                                
REPRESENTATIVE MURKOWSKI recalled that Mr. Easton had identified                                                                
that one of the purposes of Section 1 is to establish the bonding                                                               
authority for the Drinking Water program.  Why has this bonding                                                                 
process not been used in the past to finance these loans?                                                                       
                                                                                                                                
MR. EASTON deferred to Mr. Burns.                                                                                               
                                                                                                                                
Number 0968                                                                                                                     
                                                                                                                                
MIKE BURNS, Program Manager, Municipal Grants & Loans, Division of                                                              
Facility Construction & Operation, Department of Environmental                                                                  
Conservation, noted that the agency just acquired bonding authority                                                             
for the Clean Water Fund about 3.5 years ago.  After that there                                                                 
were several changes in the EPA program, which caused a slight drop                                                             
in demand at that time.  Since that time, demand has accelerated.                                                               
He also noted that one bonds only when necessary.                                                                               
                                                                                                                                
MR. BURNS explained that because of the success of the Clean Water                                                              
program in its first six or seven years, a large corpus was built                                                               
up in the fund.  In the last three years, all of the corpus has                                                                 
been lent off.  All of the assets are in progress in one form or                                                                
another.                                                                                                                        
                                                                                                                                
REPRESENTATIVE MURKOWSKI commented that this type of arrangement                                                                
appears to be an easy way to facilitate the money back into the                                                                 
loan and pay off the bonded indebtedness.  She asked again why this                                                             
bonding process has not been used before; was the financial                                                                     
where-with-all not available?                                                                                                   
                                                                                                                                
MR. BURNS informed the committee that this particular bonding                                                                   
device has only come about recently.  Only one other state has used                                                             
this [bonding device].  The Internal Revenue Service (IRS) and the                                                              
EPA have approved this bonding device.  He agreed with                                                                          
Representative Murkowski that this particular bonding device was                                                                
not available before.                                                                                                           
                                                                                                                                
Number 1123                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON referred to the DEC's fact sheet entitled                                                                  
"Loan Fund Bonding and Fee Authority Legislation" dated February 1,                                                             
2000, and read the following, "In addition to the annual                                                                        
contribution of state and federal capitalization money, ...."  He                                                               
then referred to page 1 of the fiscal note, which shows a GF match                                                              
of minus $1.5 million.                                                                                                          
                                                                                                                                
MR. EASTON explained that the minus $1.5 million in GF would be                                                                 
saved.  There would also be a plus of $1.5 million in bond                                                                      
proceeds.  He further explained that the fiscal note shows a                                                                    
decrease in the GF match in the amount of $1.5 million while the                                                                
Drinking Water Fund bond receipts increased by $1.5 million.                                                                    
                                                                                                                                
REPRESENTATIVE DYSON inquired as to the amount of the annual state                                                              
contribution; is it minus $1.5?                                                                                                 
                                                                                                                                
MR. EASTON replied it is zero.  He specified that it is the $70,000                                                             
that it will cost to go through this bonding process.  In further                                                               
response to Representative Dyson, Mr. Easton stated that currently                                                              
it costs $1.5 million.                                                                                                          
                                                                                                                                
REPRESENTATIVE DYSON asked if the delta comes from the EPA grant                                                                
funds.                                                                                                                          
                                                                                                                                
MR. EASTON answered that the delta comes from taking the money out                                                              
of the loan fund versus taking it from the GF.  In further response                                                             
to Representative Dyson, Mr. Easton said that he expected the EPA                                                               
grant to amount to $8 million for the Clean Water Fund and $7.5                                                                 
million for the Drinking Water Fund.  In further response to                                                                    
Representative Dyson, Mr. Easton did not anticipate that money to                                                               
be enough.  He pointed out that the second part of HB 304 is                                                                    
present because "the pipe has an end to it."  Although no one knows                                                             
for certain, the EPA says that the last year it will ask to make                                                                
the grant for the Clean Water Fund is fiscal year(FY) 2003 and                                                                  
fiscal year 2008 for the Drinking Water Fund.                                                                                   
                                                                                                                                
REPRESENTATIVE DYSON understood then that for three years, the fund                                                             
will receive about $15 million, while in another eight years the                                                                
fund would receive about half of that.  That will build up and the                                                              
fund will perpetuate itself because the community is repaying.                                                                  
                                                                                                                                
Number 1374                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO asked if there have been any repayment                                                                    
problems with communities that have been repaying the principal and                                                             
interest on these loans.                                                                                                        
                                                                                                                                
MR. EASTON replied no, there is a zero delinquency rate.  There has                                                             
never been a late payment.                                                                                                      
                                                                                                                                
REPRESENTATIVE HALCRO inquired as to the history of the EPA grants.                                                             
                                                                                                                                
MR. EASTON answered that the EPA grants have remained relatively                                                                
constant for the last few years.  However, there has been a slight                                                              
increase in the Clean Water grant while the Drinking Water grant                                                                
has been fairly stable.                                                                                                         
                                                                                                                                
REPRESENTATIVE DYSON inquired as to who the committee is referred                                                               
to in the legislation.                                                                                                          
                                                                                                                                
MR. EASTON answered that the State Bond Committee is the committee                                                              
that determines where the money will go.  The State Bond Committee                                                              
already exists and consists of three commissioners appointed by the                                                             
governor.                                                                                                                       
                                                                                                                                
MR. BURNS, in further response to Representative Dyson, explained                                                               
that the State Bond Committee consists of the Commissioner of the                                                               
Department of Revenue, the Commissioner of the Department of                                                                    
Economic Development and the Commissioner of the Department of                                                                  
Administration.  The State Bond Committee has been in place for                                                                 
many years.                                                                                                                     
                                                                                                                                
Number 1500                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON indicated his assumption that the State Bond                                                               
Committee does not have the expertise to evaluate a sewer plant,                                                                
for example.  Therefore, he further assumed that the agency would                                                               
prepare that committee with a brief which it would review and                                                                   
approve or disapprove.                                                                                                          
                                                                                                                                
MR. BURNS agreed with Representative Dyson's assessment.  In                                                                    
further response to Representative Dyson, Mr. Burns said that the                                                               
State Bond Committee has never turned down a package the agency                                                                 
brought before it.  He specified that the agency has only brought                                                               
one package before the State Bond Committee.                                                                                    
                                                                                                                                
REPRESENTATIVE DYSON commented, "So, all the years that one portion                                                             
of this has been in place, you've only used it once?"                                                                           
                                                                                                                                
MR. BURNS noted that some of the developments are fairly "fresh."                                                               
                                                                                                                                
MR. EASTON interjected that this one will be used every year.                                                                   
                                                                                                                                
MR. BURNS, in response to Representative Dyson, specified that the                                                              
Clean Water Fund has been in place since 1989.  He further                                                                      
specified that [the agency] received bonding authority on the clean                                                             
water side only 3.5 years ago.  Furthermore, it takes about a year                                                              
to get a bond proceed issue out.                                                                                                
                                                                                                                                
REPRESENTATIVE DYSON surmised then that the delinquency rate, which                                                             
Representative Halcro inquired about earlier, is one for one.                                                                   
                                                                                                                                
MR. EASTON clarified his understanding that Representative Halcro's                                                             
question referred to whether the communities had been repaying the                                                              
loans.  He reiterated his response that the communities had been                                                                
repaying the loans.                                                                                                             
                                                                                                                                
REPRESENTATIVE DYSON surmised then that on the bonding portion, the                                                             
delinquency rate is one for one.  He asked how long the bonding                                                                 
authority has been in place.                                                                                                    
                                                                                                                                
MR. BURNS pointed out that the agency has received approval of the                                                              
package, but no bonds have been issued.  He indicated that the                                                                  
agency is looking to HB 304 to create a more efficient package with                                                             
the drinking water side.                                                                                                        
                                                                                                                                
Number 1652                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO returned to the issue of these programs due                                                               
to be phased out.  When that occurs, how will the debt be repaid?                                                               
                                                                                                                                
MR. EASTON emphasized that the programs are not intended to be                                                                  
phased out.  However, the EPA grants will stop in FY03 and FY08.                                                                
By that time, the funds will be self-supporting.  He informed the                                                               
committee that these are large funds.  For example, the Clean Water                                                             
Fund will have approximately $140 million in FY01 while the                                                                     
Drinking Water Fund will have $65 million at that time.  Those                                                                  
amounts will have substantially increased by the time the grants                                                                
end.  Mr. Easton explained that when these programs were                                                                        
established, the idea was that the EPA gave money and the state                                                                 
contributed money.  Therefore, the funds grew and once the fund was                                                             
a certain size, money would be loaned to communities.  That money                                                               
would return back to the fund with interest, and therefore the                                                                  
funds would be self-sustaining.  Furthermore, the funds should                                                                  
actually continue to grow even without any money from the EPA or                                                                
the state.                                                                                                                      
                                                                                                                                
REPRESENTATIVE HALCRO surmised then that after the grants end, the                                                              
agency would not return to the legislature to ask for any GF.                                                                   
                                                                                                                                
MR. EASTON agreed that would not happen with HB 304.  Without HB
304, the agency would have to come before the legislature and                                                                   
request funds in order to continue the programs.                                                                                
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked if her understanding that this                                                                   
financing mechanism does not place an obligation to the state other                                                             
than the match into the loan fund would be correct.  Those monies                                                               
go out to the communities that does the project.  The communities                                                               
are obligated [with regard to maintenance], but the state is not.                                                               
                                                                                                                                
MR. EASTON replied yes.                                                                                                         
                                                                                                                                
Number 1824                                                                                                                     
                                                                                                                                
CO-CHAIRMAN HARRIS related his understanding that the agency                                                                    
anticipates, once the EPA grants end, that one of the funds will                                                                
have about $140 million and a smaller amount in the other fund.  He                                                             
again asked if the agency spends all the funds it receives for                                                                  
those programs.  Co-Chairman Harris thought Mr. Easton's answer                                                                 
earlier was yes, although that could not be the case if the fund is                                                             
to grow to $140 million.                                                                                                        
                                                                                                                                
MR. EASTON clarified that the agency does not spend the money, but                                                              
it is committed to loans.  Everything in both the funds is                                                                      
committed to loans, but it is not entirely loaned out.  He                                                                      
emphasized that only a tiny fraction of the fund is spent on                                                                    
operating costs.  The money in the fund is either money that is                                                                 
actually in the hands of the communities or money that is intended                                                              
for the communities.                                                                                                            
                                                                                                                                
MR. EASTON informed the committee that the communities do not repay                                                             
the fund until after the project is completed.  He explained that                                                               
there may be an agreement with a community to build a project for                                                               
$3 million.  Those payments may be made over the course of the next                                                             
three years at the rate of maybe $200,000 every couple of months.                                                               
Once the project is completed, the community has a year to collect                                                              
money for the service and then the community begins repayment.                                                                  
                                                                                                                                
CO-CHAIRMAN HARRIS surmised then that when the EPA grants end, the                                                              
bonding authority is no longer necessary because the state will not                                                             
have an obligation to match the grants.                                                                                         
                                                                                                                                
MR. EASTON agreed with that assessment.  He did note that the only                                                              
reason the agency will probably ask to maintain bonding authority                                                               
is that bonding authority could be used for other purposes besides                                                              
the match.                                                                                                                      
                                                                                                                                
REPRESENTATIVE DYSON asked what a community would need to do in                                                                 
order to qualify for a project under either of these programs.                                                                  
                                                                                                                                
Number 2000                                                                                                                     
                                                                                                                                
MR. EASTON replied that the community would basically need to                                                                   
comply with department regulations, which may require that they                                                                 
submit plans for review.  The community must also show how it will                                                              
repay the agency.                                                                                                               
                                                                                                                                
REPRESENTATIVE DYSON asked if eight people could qualify for a                                                                  
project under either of these programs.                                                                                         
                                                                                                                                
MR. EASTON clarified that those who qualify for these loans would                                                               
be a municipality as defined by state law.                                                                                      
                                                                                                                                
REPRESENTATIVE DYSON understood then that to qualify for these                                                                  
loans, a group would have to be organized under state law.  He                                                                  
asked if HB 304 includes any language that would qualify tribal                                                                 
governments, if the state eventually recognizes tribal governments.                                                             
                                                                                                                                
MR. EASTON asked if a tribal government would be considered a                                                                   
municipality under state law.                                                                                                   
                                                                                                                                
REPRESENTATIVE DYSON said that was not his understanding.  He then                                                              
commented that a second class city would not qualify as it is not                                                               
classified as a municipality.                                                                                                   
                                                                                                                                
MR. BURNS pointed out that a second class city is classified as a                                                               
municipality in Alaska.                                                                                                         
                                                                                                                                
REPRESENTATIVE DYSON reiterated his question regarding whether                                                                  
tribal governments, if recognized, would qualify for these loans.                                                               
                                                                                                                                
MR. EASTON said that he did not know.  If tribal governments were                                                               
recognized by the state as a municipality, then tribal governments                                                              
would qualify for these loans.                                                                                                  
                                                                                                                                
Number 2121                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON asked if HB 304 says that in order to qualify,                                                             
the entity must be a municipality.                                                                                              
                                                                                                                                
MR. BURNS interjected that statute already says that in order to                                                                
qualify the entity must be a municipality.                                                                                      
                                                                                                                                
REPRESENTATIVE DYSON inquired as to where that is located in                                                                    
statute.                                                                                                                        
                                                                                                                                
REPRESENTATIVE MURKOWSKI referred Representative Dyson to page 9,                                                               
which references the municipality requirements.                                                                                 
                                                                                                                                
MR. BURNS said that the citation should be the first line of the                                                                
Chapter 46 statutes.                                                                                                            
                                                                                                                                
REPRESENTATIVE HALCRO inquired as to who would be responsible for                                                               
maintenance once the system is complete and repayment begins.                                                                   
                                                                                                                                
MR. EASTON answered that the local community would be responsible                                                               
for maintenance of the system.                                                                                                  
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked how this would tie in with the                                                                   
Denali Commission and its work with safe and clean water.                                                                       
                                                                                                                                
MR. EASTON informed the committee that the Denali Commission is not                                                             
currently funding water and sewer projects.  The loan programs                                                                  
being discussed today do not serve the smaller communities.  The                                                                
Denali Commission charter seems to be geared toward smaller, rural                                                              
communities in the state.  Although the smaller communities would                                                               
be eligible for these loans, the smaller communities tend to be                                                                 
more fully served by the Village Safe Water Program.                                                                            
                                                                                                                                
CO-CHAIRMAN HARRIS commented that the program being discussed seems                                                             
almost exclusively intended for communities with a projected income                                                             
stream or tax base.  Co-Chairman Harris asked Mr. Easton to                                                                     
continue his presentation.                                                                                                      
                                                                                                                                
Number 2252                                                                                                                     
                                                                                                                                
MR. EASTON stated that much of his presentation had been covered                                                                
through the questions.  He turned to the second part of HB 304,                                                                 
which requests the authority to split the repayment stream.  He                                                                 
then referred to a graph entitled "CW & DW Set-Asides & Program                                                                 
Support Revenue."  He directed the committee's attention to the                                                                 
line referencing the money coming in that is used to pay program                                                                
operating costs, which is identified as the federal set-asides.  He                                                             
explained that the reason the line falls between FY03 and FY04 is                                                               
because one of the federal grants end.  That is also the case for                                                               
the fall between FY08 and FY09.  He noted that he would return to                                                               
this.                                                                                                                           
                                                                                                                                
MR. EASTON informed the committee that a small portion of the                                                                   
federal grants can be used by the agency to pay for program                                                                     
operating costs.  When those grants stop, the ability to use a                                                                  
portion to pay for the program's operating costs also ends.                                                                     
Therefore, HB 304 would allow the repayments from the communities                                                               
to be split into two parts and a small portion could be used to pay                                                             
for the program's operating costs.  Mr. Easton then referred to a                                                               
diagram entitled, "Proposed Loan Fund Schematic."  This diagram                                                                 
illustrates the split that occurs with repayment.  He explained                                                                 
that HB 304 establishes an administrative fund which consists of an                                                             
income account and an operating account.  A portion of the                                                                      
community repayments comes into the income account.  Through the                                                                
budget process, the agency asks the legislature to appropriate some                                                             
money from the income account to the operating account.  Through                                                                
the operating budget process, the agency requests that money be                                                                 
transferred from the operating account to the DEC operating budget.                                                             
He pointed out that the diagram entitled, "Proposed Loan Fund                                                                   
Schematic" illustrates the changes that would occur under HB 304.                                                               
                                                                                                                                
Number 2489                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI commented that some of the material                                                                    
referring to how the program administration costs are covered says                                                              
that 5 percent is designated to pay for the administration program.                                                             
She asked if that 5 percent is from the repayment from the                                                                      
communities.  If that is the case, then she may have misunderstood                                                              
Mr. Easton's earlier statement that indicated that program support                                                              
would have to go through the legislative appropriation process and                                                              
come out through the operating budget.                                                                                          
                                                                                                                                
MR. EASTON clarified that the percentage is actually 0.5 percent.                                                               
He reiterated that HB 304 would allow this money to be split, which                                                             
would be defined in regulation.  Currently, the communities pay                                                                 
about 4.3 percent on their loans.  The funds have done well and the                                                             
agency is in a position that it can lower interest rates now.                                                                   
Therefore, the agency would like to do the following by regulation.                                                             
First, it would want to decrease the interest rate on the community                                                             
loans to 2.5 percent.  Second, the agency would want to take 2                                                                  
percent and place that in the loan fund and place that .5 percent                                                               
in the income account.  He explained that the .5 percent is based                                                               
on projections with regard to how much money will be repaid and                                                                 
what would be required to cover the program's operating costs once                                                              
the federal grants end.                                                                                                         
                                                                                                                                
MR. EASTON posed the question of what would happen if the agency                                                                
collected too much money.  If that happened, the agency could                                                                   
request that the money be appropriated back to the corpus of the                                                                
loan or money could be loaned out directly from the income account.                                                             
On the other hand, if the .5 percent was not enough money to cover                                                              
the program's operating costs, then that percentage would be                                                                    
increased by regulation to the point at which it would cover the                                                                
operating costs.  Mr. Easton commented that this is a very                                                                      
predictable system.  Furthermore, he was confident that .5 percent                                                              
will cover the operating costs.                                                                                                 
                                                                                                                                
REPRESENTATIVE MURKOWSKI inquired as to who administers the loan                                                                
fund.  She also asked what the rate of return has been                                                                          
historically.  She understood that the fund is doing well enough to                                                             
reduce the interest rate to the communities to 2.5 percent.  What                                                               
happens if the market takes a down turn?  She asked if it would be                                                              
prudent to keep the interest rate at its current level.                                                                         
                                                                                                                                
Number 2689                                                                                                                     
                                                                                                                                
MR. BURNS answered that this fund is administered by the Treasury                                                               
Division of the Department of Revenue.                                                                                          
                                                                                                                                
MR. EASTON stated that the rate of return has been about 6 percent.                                                             
                                                                                                                                
MR. BURNS noted that 5 percent has been the average rate of return.                                                             
                                                                                                                                
MR. EASTON turned to Representative Murkowski's question regarding                                                              
what would happen if 2.5 percent is not enough.  He said that it is                                                             
not exactly a flat 2.5 percent.  He explained that the interest                                                                 
rate remains 2.5 percent until the municipal bond index reaches 8                                                               
percent.  At that point, the 2.5 percent begins to fluctuate as a                                                               
percentage of the municipal bond index.                                                                                         
                                                                                                                                
REPRESENTATIVE MURKOWSKI commented that she was a bit perplexed.                                                                
If it is known that there is a finite time period within which the                                                              
EPA grants are received and the desire is to build up the fund so                                                               
that it can maintain itself, would it not be prudent to keep the                                                                
interest rate at 4.3 percent.                                                                                                   
                                                                                                                                
MR. EASTON reiterated his confidence that the interest rate can be                                                              
reduced to 2.5 percent.  He acknowledged that the fund would grow                                                               
faster and be larger with the 4.3 percent.  However, the intent is                                                              
to balance the demand for loans with the health of the funds and                                                                
make the loans as attractive as possible.                                                                                       
                                                                                                                                
REPRESENTATIVE DYSON returned to his concerns with regard to who                                                                
qualifies for these loans and if tribes would qualify, which is a                                                               
point that he needed resolved in order to vote for this bill to                                                                 
move out of committee.  He referred to Section 1, which refers to                                                               
"municipalities and other qualified entities under AS 46.03.032 and                                                             
46.03.036".  He informed the committee that AS 46.03.032(1) says                                                                
that "'other qualified entity' means an intermunicipal or                                                                       
interstate agency" and then refers to AS 29.35.010(13).  That                                                                   
statute, AS 29.35.010(13), says "to enter into an agreement,                                                                    
including an agreement for cooperative or joint administration of                                                               
any function or power with a municipality, the state, or the United                                                             
States;".  He asked then if the 200 plus tribes that are on the                                                                 
Department of Interior's list qualify as an "other entity" and                                                                  
allow the agency the authority to make these loans to tribes.  Who                                                              
can provide a definitive answer on that?                                                                                        
                                                                                                                                
Number 2957                                                                                                                     
                                                                                                                                
CRAIG TILLERY, Assistant Attorney General, Environmental Section,                                                               
Civil Division, Department of Law, testified via teleconference                                                                 
from Anchorage.  He referred to Section 20, the Drinking Water                                                                  
Fund, which provides the authority to provide financial assistance                                                              
to municipalities for municipal drinking water system projects.  He                                                             
offered to go back and affirm that the term municipality does not                                                               
[refer to tribes - per the secretary's log notes].                                                                              
                                                                                                                                
TAPE 00-7, SIDE B                                                                                                               
                                                                                                                                
Number 2975                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON asked if Mr. Tillery would have any problems                                                               
with deleting the language "and other qualified entities" from HB
304.                                                                                                                            
                                                                                                                                
MR. TILLERY said that he would have to review AS 46.03.032 and thus                                                             
could not provide the committee with a definitive answer at this                                                                
point.  However, he believed that he would eventually be able to                                                                
assure the committee that the authority of HB 304 to implement the                                                              
Drinking Water Program is limited to municipalities.                                                                            
                                                                                                                                
REPRESENTATIVE DYSON noted that Mr. Tillery would also need to                                                                  
explain why the language "and other qualified entities" is included                                                             
on page 1, line 11, and probably elsewhere.                                                                                     
                                                                                                                                
MR. TILLERY interjected that the specified language is existing                                                                 
law.                                                                                                                            
                                                                                                                                
REPRESENTATIVE DYSON recognized that the specified language is                                                                  
existing law.  However, he inquired as to why that language needs                                                               
to remain if loans will only be made to organizations recognized                                                                
under state law.                                                                                                                
                                                                                                                                
MR. TILLERY referred to AS 46.03.032, existing law, and pointed out                                                             
that "other qualified entities" would refer to entities qualified                                                               
under federal law.  "With the new portion under HB 304, that is                                                                 
strictly limited to municipalities.  But the existing law does go                                                               
to municipalities and other qualified entities."  Mr. Tillery                                                                   
understood Representative Dyson to be asking if HB 304 could be                                                                 
used to amend the Clean Water Fund authorization to limit it from                                                               
its current status.                                                                                                             
                                                                                                                                
REPRESENTATIVE DYSON inquired as to the location of the language in                                                             
HB 304 that says money can only go communities organized under                                                                  
state law.                                                                                                                      
                                                                                                                                
MR. TILLERY referred to Section 20(b)(1).  The language allowing                                                                
the Alaska Drinking Water Fund to function, limits financial                                                                    
assistance "to municipalities for drinking water system projects".                                                              
That is different than existing law, AS 46.03.032, for the Clean                                                                
Water Fund.                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON referred to page 8, line 23, and inquired as                                                               
to where there is complimentary language for the Clean Water Fund.                                                              
                                                                                                                                
MR. TILLERY directed Representative Dyson to AS 46.03.032(d)(2).                                                                
He commented that subsection (a) is sort of the parallel authority                                                              
for the Drinking Water Fund.  He noted that existing law is broader                                                             
than the law being sought with HB 304.                                                                                          
                                                                                                                                
REPRESENTATIVE DYSON commented that he was lost.                                                                                
                                                                                                                                
Number 2749                                                                                                                     
                                                                                                                                
MR. TILLERY clarified that he was trying to say that the Clean                                                                  
Water Fund is broader as it refers to "municipalities and other                                                                 
qualified entities."  He reiterated that existing law is broader                                                                
than the law being sought for the Drinking Water Fund with HB 304.                                                              
                                                                                                                                
REPRESENTATIVE DYSON said that he understood then that HB 304 is                                                                
altering the Drinking Water Fund.  He informed the committee of his                                                             
understanding that follows.  If the state recognizes tribes and                                                                 
tribes qualify as "other qualified entities," then the Clean Water                                                              
Fund would be available to tribal governments.  Furthermore, HB 304                                                             
does not effect that.                                                                                                           
                                                                                                                                
MR. TILLERY agreed with Representative Dyson.  With regard to the                                                               
"ifs" posed by Representative Dyson, Mr. Tillery did not know the                                                               
answer.  If tribes do qualify as "other qualified entities," then                                                               
the Clean Water Fund would apply [be available to tribal                                                                        
governments].  He reiterated that what is being done today, HB 304,                                                             
will not effect that.                                                                                                           
                                                                                                                                
MR. BURNS informed the committee that he attended the Senate                                                                    
Community & Regional Affairs Committee meeting when the language                                                                
"other qualified entity" was inserted into the legislation                                                                      
achieving bonding authority for the Clean Water Fund.  At the time,                                                             
Senator Torgerson was the Chair of that committee.  Mr. Burns said                                                              
that he knew the committee's intent.  That committee wondered if a                                                              
housing authority adjacent to the boundary of a municipality could                                                              
apply through the municipality for [the Clean Water Fund].  He                                                                  
believed that it is fairly clear that the "other qualified entity"                                                              
would have to go through the municipality, and therefore the loan                                                               
from the state would still be to the municipality.                                                                              
                                                                                                                                
REPRESENTATIVE DYSON requested that the U.S. code referred to with                                                              
regards to this language be pointed out.  He then offered to find                                                               
that.                                                                                                                           
                                                                                                                                
Number 2588                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO inquired as to the agency's granted bonding                                                               
authority.  Does the agency have to come before the legislature to                                                              
obtain approval for the amount the agency is going to bond in a                                                                 
year.  Are there any side boards based on how many bonds are sold?                                                              
                                                                                                                                
MR. EASTON explained that the agency is limited to a total of $15                                                               
million per program, under existing statute.  The agency does not                                                               
need to go before the legislature to sell up to $15 million, it                                                                 
only needs to seek permission from the State Bond Committee.  He                                                                
specified that this is the case if HB 304 passes.                                                                               
                                                                                                                                
REPRESENTATIVE HALCRO said that he wanted to make sure that there                                                               
are some sort of side boards every year.                                                                                        
                                                                                                                                
REPRESENTATIVE MURKOWSKI referred to the DEC's fact sheet entitled,                                                             
"Interest Structure and Fee Rate Regulation Amendments."  She asked                                                             
if these are proposed regulations or regulations that are currently                                                             
in place.                                                                                                                       
                                                                                                                                
MR. EASTON answered that the regulations have been drafted, but                                                                 
have not been public noticed which is the first step in the formal                                                              
rule-making process.  That formal regulation amendment process has                                                              
not yet started.                                                                                                                
                                                                                                                                
REPRESENTATIVE MURKOWSKI pointed out that one of the changes in the                                                             
proposed regulations discontinues the federal requirement for using                                                             
Davis Bacon wages on clean water construction projects and allows                                                               
DEC to use Alaska's Department of Labor rates instead.                                                                          
                                                                                                                                
MR. EASTON deferred to Mr. Burns.                                                                                               
                                                                                                                                
MR. BURNS explained that several portions of the Clean Water Act                                                                
have expired and are no longer mandatory upon the state.                                                                        
Originally, the federal requirements were required to be in the                                                                 
regulations in order to begin the program.  Therefore, this is                                                                  
merely housekeeping.                                                                                                            
                                                                                                                                
Number 2375                                                                                                                     
                                                                                                                                
LARRY HANCOCK, City Manager, City of Cordova, testified via                                                                     
teleconference from Cordova.  He informed the committee that the                                                                
City of Cordova currently uses the Alaska Clean Water Fund and the                                                              
Alaska Drinking Water Fund for a total of $2.8 million.  Mr.                                                                    
Hancock said:                                                                                                                   
                                                                                                                                
     These two funds are the best sources of funds available                                                                    
     to our community for financing of capital clean water and                                                                  
     drinking water projects.  These programs in conjunction                                                                    
     with the DEC construction grants, have been used almost                                                                    
     exclusively to upgrade our water and waste water systems                                                                   
     in our landfill refuse disposal system.  Without these                                                                     
     funds, compliance orders from the EPA and the DEC,                                                                         
     resulting from infrastructure failure would not be met.                                                                    
     These are mandatory programs that we must comply with and                                                                  
     without this source of funds we would not be able to do                                                                    
     that.                                                                                                                      
                                                                                                                                
MR. HANCOCK informed the committee that Cordova's only other source                                                             
of capital construction money is through the sale of bonds or                                                                   
through loans with commercial institutions.  He pointed out that                                                                
loans with commercial institutions have a much higher interest rate                                                             
than those available through the Drinking Water and Clean Water                                                                 
Funds.  For example, Cordova is currently in the process of a                                                                   
municipal bond sale which will result in a projected interest rate                                                              
of over 5 percent.  This is a significant difference in comparison                                                              
to the Drinking Water Fund of 3.5 percent.  He noted that if HB 304                                                             
results in a decrease in interest rates for the Drinking Water and                                                              
Clean Water Funds, Cordova would save, for each 1 percent drop in                                                               
the interest rate, close to $700,000 over the term of the loans.                                                                
                                                                                                                                
MR. HANCOCK said that if the state has to reduce revenue sharing                                                                
and cannot return maintenance money to the state [municipality],                                                                
the only option is for the community to reduce its expenditures.                                                                
If the state can help by reducing its interest rate, then                                                                       
communities may be able to make up for the decrease in revenue                                                                  
sharing.  Furthermore, if the housekeeping can improve the                                                                      
management of the loans, the communities will have less difficulty                                                              
in dealing with the construction grants and loan department in DEC.                                                             
In conclusion, Mr. Hancock stated that the City of Cordova strongly                                                             
supports the passage of HB 304.                                                                                                 
                                                                                                                                
REPRESENTATIVE MURKOWSKI inquired as to how long Cordova has taken                                                              
advantage of these bonds.                                                                                                       
                                                                                                                                
MR. HANCOCK explained that Cordova has two fairly new loans, but                                                                
the projects are still in the construction process and no money has                                                             
been drawn against the loan.  He believed that a third loan is                                                                  
three years old.  In further response to Representative Murkowski,                                                              
Mr. Hancock answered that repayment has not been a problem.                                                                     
However, he noted that it is a detailed process qualifying for                                                                  
these loans.  [The agency] is as tough in its qualification                                                                     
standards as is any banking institution.                                                                                        
                                                                                                                                
CO-CHAIRMAN HARRIS, in response to Representative Dyson, specified                                                              
that HB 304 next moves to the House Judiciary Committee and then                                                                
the House Finance Committee.                                                                                                    
                                                                                                                                
REPRESENTATIVE DYSON announced that he would not stop the movement                                                              
of HB 304 and would get his questions answered.                                                                                 
                                                                                                                                
CO-CHAIRMAN HARRIS closed the public testimony at this time.                                                                    
                                                                                                                                
Number 2112                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI moved to report HB 304 out of committee                                                                
with individual recommendations and the accompanying fiscal notes.                                                              
There being no objection, it was so ordered.                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
There being no further business before the committee, the House                                                                 
Community & Regional Affairs Standing Committee meeting was                                                                     
adjourned at 9:24 a.m.                                                                                                          

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