03/11/2003 09:05 AM House CRA
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ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
March 11, 2003
9:05 a.m.
MEMBERS PRESENT
Representative Kelly Wolf, Vice Chair
Representative Tom Anderson
Representative Mike Chenault
Representative Ralph Samuels
Representative Sharon Cissna
MEMBERS ABSENT
Representative Carl Morgan, Chair
Representative Albert Kookesh
COMMITTEE CALENDAR
SENATE BILL NO. 51
"An Act relating to revenue bonds issued by the Alaska Municipal
Bond Bank Authority and the total amount of bonds and notes
outstanding of that authority; and providing for an effective
date."
- MOVED SB 51 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: SB 51
SHORT TITLE:BONDS OF BOND BANK AUTHORITY
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
01/31/03 0088 (S) READ THE FIRST TIME -
REFERRALS
01/31/03 0088 (S) CRA, FIN
01/31/03 0088 (S) FN1: ZERO(REV)
01/31/03 0089 (S) GOVERNOR'S TRANSMITTAL LETTER
02/12/03 (S) CRA AT 1:30 PM FAHRENKAMP 203
02/12/03 (S) Moved Out of Committee
02/12/03 (S) MINUTE(CRA)
02/14/03 0186 (S) CRA RPT 3DP
02/14/03 0186 (S) DP: WAGONER, ELTON, LINCOLN
02/14/03 0186 (S) FN1: ZERO(REV); FN2:
ZERO(CED)
02/27/03 (S) FIN AT 9:00 AM SENATE FINANCE
532
02/27/03 (S) Moved Out of Committee
02/27/03 (S) MINUTE(FIN)
02/28/03 0294 (S) FIN RPT 6DP 1NR
02/28/03 0294 (S) DP: GREEN, WILKEN, TAYLOR,
HOFFMAN,
02/28/03 0294 (S) BUNDE, STEVENS B; NR: OLSON
02/28/03 0294 (S) FN1: ZERO(REV); FN2:
ZERO(CED)
03/03/03 0320 (S) RULES TO CALENDAR 3/3/2003
03/03/03 0320 (S) READ THE SECOND TIME
03/03/03 0320 (S) ADVANCED TO THIRD READING 3/4
CALENDAR
03/04/03 0334 (S) READ THE THIRD TIME SB 51
03/04/03 0335 (S) PASSED Y18 N- E1 A1
03/04/03 0335 (S) EFFECTIVE DATE(S) SAME AS
PASSAGE
03/04/03 0344 (S) TRANSMITTED TO (H)
03/04/03 0344 (S) VERSION: SB 51
03/05/03 0392 (H) READ THE FIRST TIME -
REFERRALS
03/05/03 0392 (H) CRA, FIN
03/11/03 (H) CRA AT 9:00 AM CAPITOL 124
WITNESS REGISTER
DEVEN MITCHELL, Executive Director
Alaska Municipal Bond Bank Authority (AMBBA)
Department of Revenue;
Debt Manager, Treasury Division, Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Discussed the need for SB 51.
ACTION NARRATIVE
TAPE 03-8, SIDE A
Number 0001
VICE CHAIR WOLF called the House Community and Regional Affairs
Standing Committee meeting to order at 9:05 a.m.
Representatives Wolf, Anderson, Samuels, and Cissna were present
at the call to order. Representative Chenault arrived as the
meeting was in progress.
SB 51-BONDS OF BOND BANK AUTHORITY
VICE CHAIR WOLF announced that the only order of business would
be SENATE BILL NO. 51, "An Act relating to revenue bonds issued
by the Alaska Municipal Bond Bank Authority and the total amount
of bonds and notes outstanding of that authority; and providing
for an effective date."
Number 0125
DEVEN MITCHELL, Executive Director, Alaska Municipal Bond Bank
Authority (AMBBA), Department of Revenue; Debt Manager, Treasury
Division, Department of Revenue, explained that SB 51 increases
the statutory cap on total borrowing of AMBBA from $300 million
to $500 million. Additionally, the annual limitation on the
ability to issue revenue bonds is increased from $50 million to
$75 million. Both changes were requested in light of the use of
AMBBA by municipalities to finance capital projects and receive
some of the advantages available through the structure offered
by AMBBA.
MR. MITCHELL informed the committee that AMBBA, which is
basically a conduit borrower, is a public corporation that was
created in 1975. He explained that AMBBA, which has A credit,
borrows money on the capital market. Due to AMBBA's credit
structure, its reserves, and its ability to provide security to
bond holders, AMBBA is able to issue bonds efficiently. The
bond insurers provide a means for becoming a triple A credit,
then the bonds can be insured such that an insurance firm
guarantees the bond holders will be paid triple A rated. A
premium is charged to do the aforementioned. He noted that
AMBBA receives very competitive bids. Therefore, AMBBA's
efficiencies and strong credit rating allow it to obtain capital
for projects at a lower cost.
Number 0361
MR. MITCHELL related that this year the revenue program has done
a loan to the following entities for the amount specified:
Ketchikan Public Utility for $6 million, City & Borough of
Juneau for a port project and a hospital expansion, and a
hospital in Valdez. The combination of these revenue projects
exceed the $50 million cap. Therefore, the request for the
increase from $50 million to $75 million. He highlighted that
the savings the City & Borough of Juneau will experience with
the hospital expansion is calculated to be $7 million. Mr.
Mitchell explained, "So, it's not taking money from the general
fund and giving it to them [rather] it's taking money out of the
pocket of investors that would otherwise they would charge a
higher premium or higher interest rate on their money because of
perceived risk." The AMBBA is able to lower that perceived risk
and pass on savings to the local communities. Mr. Mitchell
noted that AMBBA also has general obligation loan applications
from the Lake and Peninsula Borough, the Kenai Peninsula
Borough, and the Ketchikan Gateway Borough. He noted his
expectation that there will be other loan applications coming.
MR. MITCHELL turned to the need for the increase in the $300
million cap. He explained that at the beginning of the fiscal
year AMBBA has about $220 million in outstanding bonds. If all
of AMBBA's bonds were issued immediately, AMBBA would exceed the
$50 million cap as well as the $300 million cap. He highlighted
that the bonds are project driven and have no cost to the
general fund because it's a pledge of resources that already
exist at AMBBA. Mr. Mitchell said this is worth the review of
the committee because these are moral obligation bonds of the
state and thus in the event of a default, there would be a draw
from the reserve fund and the state would be asked to replenish
that reserve fund.
Number 0640
REPRESENTATIVE CISSNA asked whether now is a good time to do
this.
MR. MITCHELL answered that the bond market is especially
attractive due to the interest rates. He related that in review
of the last 40 years, 98 percent of the time interest rates were
higher than currently.
REPRESENTATIVE SAMUELS asked if this legislation would impact
the state's bond rating.
MR. MITCHELL clarified that the state's bond rating impacts the
bond rating of the public corporations of the state, whether
it's AMBBA, the Alaska Industrial Development and Export
Authority (AIDEA), or the Alaska Housing Finance Corporation
(AHFC). He related his belief that AMBBA couldn't as easily
influence the state's rating.
MR. MITCHELL returned to his earlier mention that AMBBA will
save money for municipalities as well as the state. He
explained that many of the loans are for municipalities
participating in the school debt reimbursement program. When
that [reimbursement] happens, 60-70 percent of the funding under
the current authorization can be paid by the state through
reimbursement. For example, the Northwest Arctic Borough has
the ability to issue $100 million in general obligation bonds
for school construction while only $48 million have been issued.
He pointed out that as far as an outsider's credit perspective,
the Northwest Arctic Borough is the Red Dog Mine, the
community's only source of revenue. Therefore, the community's
economy isn't diversified and is based on mining, which analysts
tend to not like, and furthermore it's very remote. Therefore,
going from a noninvestment grade credit to an A credit is
significant on $48 million. Mr. Mitchell estimated that savings
to the state has been $5-$6 million over the life of those
bonds.
Number 1016
REPRESENTATIVE ANDERSON inquired as to which municipalities
would benefit the most from this [legislation]. He also
inquired as to the consequences were SB 51 not to pass.
MR. MITCHELL noted that Valdez is very concerned about [the
passage of this legislation] for the short-term because Valdez
has a revenue bond project that it would like to move forward.
If AMBBA doesn't have the ability to issue more than $50 million
in revenue bonds this fiscal year, Valdez would be looking at
two series of bonds which would result in an increased cost to
AMBBA and Valdez. Mr. Mitchell said he didn't know which
community would benefit from the overall cap increase. However,
those communities that would benefit the most are those in the
weakest credit position. He pointed out that AMBBA works with
communities as strong as the Kenai Peninsula Borough when there
is a transaction of a size that doesn't necessarily warrant the
process of issuing bonds independently.
MR. MITCHELL turned to the question of the consequences if SB 51
didn't pass and stated that AMBBA wouldn't be able to issue
bonds after reaching the cap. He noted that the cap is rolling
and much of the debt is only 10-year debt and thus AMBBA's debt
declines fairly quickly. However, [recently] there have been
high growth years. For example, in 1990 AMBBA had about $180
million in outstanding bonds which has risen to $220 million,
and this year there will be about seven deals.
Number 1243
VICE CHAIR WOLF asked if a default on one of these bonds would
place the state's assets, such as the permanent fund dividend,
at risk.
MR. MITCHELL replied no because with a public corporation there
is no broad-reaching authority; the pledges given are limited to
that public corporation other than the state guaranteed AHFC
bonds for which there vote [is required].
VICE CHAIR WOLF asked if municipalities can partner with private
enterprise in order to use bonds to fund projects.
MR. MITCHELL responded yes, but noted that there are
limitations; it depends upon whether tax exempt or taxable bonds
are used, he said. If there is a situation in which a private
entity benefits from a project, then there are limitations on
their ability to use tax exempt bonding. He noted that a
private activity cap allocation can be used for certain things
such as ports and harbors that are exempted. Therefore, such
bonds could be used without [applying] to the cap. Furthermore,
AIDEA and AHFC can do things along that line as well. He
mentioned that the City & Borough of Juneau's hospital expansion
involves private management firms, although it's not going to be
privately owned. As long as it's a public project for the
general public to use, [the loan] is basically in the tax exempt
arena. Mr. Mitchell noted that there has been discussion of tax
increment financing transactions in Anchorage. He likened the
tax increment financing to a limited improvement district (LID).
Number 1503
REPRESENTATIVE SAMUELS moved to report SB 51 out of committee
with individual recommendations and the accompanying zero fiscal
note. There being no objection, SB 51 was reported from the
House Community and Regional Affairs Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:25 p.m.
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