Legislature(2021 - 2022)BARNES 124

04/08/2021 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

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08:02:48 AM Start
08:03:26 AM HB127
09:13:15 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 127 MUNI BOND BANK: UA, LOAN AND BOND LIMITS TELECONFERENCED
Heard & Held
-- Invited & Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                         April 8, 2021                                                                                          
                           8:02 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Sara Hannan, Co-Chair                                                                                            
Representative Calvin Schrage, Co-Chair                                                                                         
Representative Josiah Patkotak, Vice Chair                                                                                      
Representative Harriet Drummond                                                                                                 
Representative Mike Prax                                                                                                        
Representative Ken McCarty                                                                                                      
Representative Kevin McCabe                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 127                                                                                                              
"An Act relating to the Alaska Municipal Bond Bank Authority."                                                                  
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 127                                                                                                                  
SHORT TITLE: MUNI BOND BANK: UA, LOAN AND BOND LIMITS                                                                           
SPONSOR(s): REPRESENTATIVE(s) LEBON                                                                                             
                                                                                                                                
03/05/21       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/05/21       (H)       CRA, FIN                                                                                               
04/08/21       (H)       CRA AT 8:00 AM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE BART LEBON                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  As prime sponsor, introduced HB 127.                                                                     
                                                                                                                                
AIMEE BUSHNELL                                                                                                                  
Staff, Representative Bart LeBon                                                                                                
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Offered a sectional analysis for  HB 127 on                                                             
behalf of Representative LeBon, prime sponsor.                                                                                  
                                                                                                                                
DEVEN MITCHELL, Executive Director                                                                                              
Alaska Municipal Bond Bank Authority                                                                                            
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Explained the necessity for HB 127.                                                                      
                                                                                                                                
MYRON DOSCH, Chief Finance Officer                                                                                              
University of Alaska                                                                                                            
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 127.                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
8:02:48 AM                                                                                                                    
                                                                                                                                
CO-CHAIR CALVIN  SCHRAGE called the House  Community and Regional                                                             
Affairs  Standing  Committee  meeting   to  order  at  8:02  a.m.                                                               
Representatives  McCarty,  Drummond,  Prax, Hannon,  and  Schrage                                                               
were present at the call  to order.  Representatives Patkotak and                                                               
McCabe arrived as the meeting was in progress.                                                                                  
                                                                                                                                
        HB 127-MUNI BOND BANK: UA, LOAN AND BOND LIMITS                                                                     
                                                                                                                                
8:03:26 AM                                                                                                                    
                                                                                                                                
CO-CHAIR SCHRAGE announced that the  only order of business would                                                               
be HOUSE BILL  NO. 127, "An Act relating to  the Alaska Municipal                                                               
Bond Bank Authority."                                                                                                           
                                                                                                                                
8:03:54 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BART LEBON,  Alaska State  Legislature, as  prime                                                               
sponsor,  introduced   HB  127.    He   paraphrased  the  sponsor                                                               
statement,   which   read   as  follows   [original   punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     This  bill   expands  the   authority  of   the  Alaska                                                                    
     Municipal   Bond  Bank   Authority  regarding   bonding                                                                    
     capacity  to  the  University of  Alaska  and  regional                                                                    
     health organizations.                                                                                                      
                                                                                                                                
       Regarding the University of Alaska (UA), the bill                                                                        
     proposes two changes:                                                                                                      
          ?  Removes  the   project  scope  limiting  Alaska                                                                    
     Municipal  Bond Bank  Authority  participation to  only                                                                    
     heating or energy projects                                                                                                 
          ?  Raises the  UA project  participation cap  from                                                                    
     $87,500,000 to $500,000,000                                                                                                
                                                                                                                                
     Previously  the  University  used Municipal  Bond  Bank                                                                    
     participation  for funding  of  the  combined heat  and                                                                    
     power  plant at  the  University  of Alaska  Fairbanks.                                                                    
     This change is intended  to provide the University with                                                                    
     expanded tools  for financing or  refinancing, allowing                                                                    
     the  University to  leverage the  bond  ratings of  the                                                                    
     Alaska Municipal  Bond Bank Authority  if advantageous.                                                                    
     This additional financing tool is  not intended to be a                                                                    
     substitute  for  capital   appropriations  through  the                                                                    
     legislature.                                                                                                               
                                                                                                                                
     Regarding  regional  health   organizations,  the  bill                                                                    
     proposes these changes:                                                                                                    
          ?  Removes  the  49% Alaska  Municipal  Bond  Bank                                                                    
     Authority single-project participation cap                                                                                 
          ?  Raises   the  cap   for  all   regional  health                                                                    
     organization    projects     from    $205,000,000    to                                                                    
     $500,000,000                                                                                                               
                                                                                                                                
     This  change is  intended to  expand opportunities  for                                                                    
     regional  health   organizations  to  use   the  Alaska                                                                    
     Municipal  Bond  Bank  Authority.  In  accordance  with                                                                    
     existing statute  AS 44.85.010, the Bond  Bank provides                                                                    
     capital   funds  through   loans  to   regional  health                                                                    
     organizations  "when  the  commissioner of  health  and                                                                    
     human  services anticipates  a state  financial benefit                                                                    
     and  an  increase in  regional  quality  of care."  The                                                                    
     financial  benefit   is  realized   by  the   state  by                                                                    
     capturing  additional  Federal Medicaid  reimbursement,                                                                    
     assisting the State in reducing Medicaid expenditures.                                                                     
                                                                                                                                
     I   would   appreciate   your  support   in   expanding                                                                    
     opportunities   for  the   University  of   Alaska  and                                                                    
     Alaska's regional  health organizations to  utilize the                                                                    
     Alaska Municipal Bond Bank Authority.                                                                                      
                                                                                                                                
8:06:23 AM                                                                                                                    
                                                                                                                                
AIMEE BUSHNELL,  Staff, Representative  Bart LeBon,  Alaska State                                                               
Legislature, offered  a sectional analysis  for HB 127  on behalf                                                               
of Representative  LeBon, prime sponsor.   The sectional analysis                                                               
read  as  follows  [original   punctuation  provided,  with  some                                                               
formatting changes]:                                                                                                            
                                                                                                                                
     Sec. 1. AS 44.85.010                                                                                                       
     Removes the  project scope  limitation of  only heating                                                                    
     or  energy  projects  for   the  University  of  Alaska                                                                    
     Fairbanks                                                                                                                  
                                                                                                                                
     Sec. 2. AS 44.85.090                                                                                                       
     Removes  the 49%  project participation  on the  Alaska                                                                    
     Municipal  Bond Bank  for regional  health organization                                                                    
     projects Raises  the $102,500,000  project limit  for a                                                                    
     single   regional   health  organization   project   to                                                                    
     $250,000,000                                                                                                               
                                                                                                                                
     Sec. 3. AS 44.85.180                                                                                                       
     Raises  the $87,500,000  cap for  University of  Alaska                                                                    
     projects  to $500,000,000  Raises the  $205,000,000 cap                                                                    
     for   regional   health    organization   projects   to                                                                    
     $500,000,000                                                                                                               
                                                                                                                                
8:07:49 AM                                                                                                                    
                                                                                                                                
DEVEN MITCHELL,  Executive Director,  Alaska Municipal  Bond Bank                                                               
Authority, Department of Revenue,  explained the necessity for HB
127.   Currently,  he said,  there is  a limitation  on financing                                                               
participation for the  Alaska Municipal Bond Bank,  on a regional                                                               
health organization project, of 49  percent of the project.  This                                                               
means  a regional  health  organization  considering financing  a                                                               
project  would have  to use  not only  the Alaska  Municipal Bond                                                               
Bank, but also have another  significant lender, which results in                                                               
pressure not to  use the Alaska Municipal Bond Bank,  even if the                                                               
alternatives  are  slightly more  costly.    He said  the  Alaska                                                               
Municipal  Bond Bank  has  done a  couple  projects for  regional                                                               
health  organizations:    a  refinancing   of  the  Tanana  Chief                                                               
Conference's (TCC's)  health clinic  in Fairbanks and  the Yukon-                                                               
Kuskokwim Health  Corporation's (YKHC's) new hospital  project in                                                               
Bethel.   He  said  TCC had  borrowed money  prior  to using  the                                                               
Alaska Municipal  Bond Bank to  refinance its bonds and  was "not                                                               
able  to  achieve  an  investment grid  credit  rating  on  those                                                               
bonds,"  but  the  Alaska  Municipal Bond  Bank  helped  them  to                                                               
"structure their transaction  in a way that  the municipal market                                                               
expects  to  see"  thus  getting  "an  investment  credit  rating                                                               
similar ...  to the  bond bank's  rating."   He called  this "the                                                               
meat and  potatoes of what the  bond bank's all about,"  which is                                                               
to provide  opportunities to  people "to  access markets  so that                                                               
they  can gain  experience and  then  be able  to access  markets                                                               
independent of the bond bank."                                                                                                  
                                                                                                                                
MR.  MITCHELL said  in  the 1970s,  Alaska was  "kind  of like  a                                                               
different country  almost" compared  to the financial  markets in                                                               
New  York.   The Alaska  Municipal  Bond Bank  could lend  credit                                                               
support to smaller communities, to  the extent that the state was                                                               
able  to  provide it,  and  reduce  costs for  capital  projects,                                                               
thereby  helping  communities to  gain  experience  so that  they                                                               
could potentially  issue bonds without the  Alaska Municipal Bond                                                               
Bank, if it was advantageous for them to do so.                                                                                 
                                                                                                                                
8:11:21 AM                                                                                                                    
                                                                                                                                
MR. MITCHELL  talked about the  proposed increase in the  cap for                                                               
the  University of  Alaska (UA).   He  indicated that  because of                                                               
UA's  financial stress  of  the  last several  years,  it had  "a                                                               
fairly draconian negative  credit action against them."   He said                                                               
the  Alaska Municipal  Bond Bank  has worked  with University  of                                                               
Alaska  Fairbanks (UAF)  on a  specific  project on  campus.   He                                                               
added,  "It  made  sense  to  provide  greater  opportunities  or                                                               
alternatives for the  university to use the bond  bank for either                                                               
refinancing  other outstanding  loans or  any new  money projects                                                               
that might come down the road  here in the future."  Mr. Mitchell                                                               
offered to answer questions from the committee.                                                                                 
                                                                                                                                
8:12:55 AM                                                                                                                    
                                                                                                                                
MYRON DOSCH, Chief Finance Officer,  University of Alaska, stated                                                               
the  university's support  for  HB  127.   He  said the  proposed                                                               
legislation  would provide  the opportunity  for UA  to obtain  a                                                               
loan  through the  Alaska Municipal  Bond Bank  at a  potentially                                                               
lower rate  than it could obtain  on its own.   He explained that                                                               
is because  the Alaska  Municipal Bond Bank  has a  higher credit                                                               
rating than UA  does, which means UA can save  on financing costs                                                               
on  refinancing or  borrowing  for new  capital  projects in  the                                                               
future.                                                                                                                         
                                                                                                                                
8:14:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HANNAN asked Mr. Mitchell  for an overview of what                                                               
a municipal Alaska Municipal Bond Bank is structured to do.                                                                     
                                                                                                                                
8:15:26 AM                                                                                                                    
                                                                                                                                
MR.  MITCHELL  responded  that the  Alaska  Municipal  Bond  Bank                                                               
program  was created  as a  public  corporation of  the State  of                                                               
Alaska in 1975.  The purpose  of the corporation has been to lend                                                               
support to credit-worthy municipalities  that would otherwise pay                                                               
higher  interest rates.    He said  the  process for  considering                                                               
loans  involves  a  five-member board  that  considers  a  credit                                                               
report from  the Alaska Municipal  Bond Bank, which  issues bonds                                                               
that carry a moral obligation pledge  of the State of Alaska.  He                                                               
explained  that moral  obligation is  a  term of  art "where  the                                                               
enacting statutes of  a program require, upon  issuance of bonds,                                                               
you fund  a reserve that's  in place to  secure the bonds  in the                                                               
event  of a  payment failure,  and that,  in addition  to funding                                                               
that reserve,  you have  an annual  reporting requirement  to the                                                               
legislature and  governor to  notify them  of the  sufficiency of                                                               
that  reserve."   If  the  reserve  were insufficient,  then  the                                                               
governing body would  appropriate to replenish it.   He said that                                                               
structure "gets  you a rating based  on, in this case,  the State                                                               
of  Alaska."   He added,  "So, we  wind up  with a  credit rating                                                               
that's one  notch off the State  of Alaska."  Mr.  Mitchell noted                                                               
that the bonds are all self-paying;  there has not been a draw on                                                               
that  reserve, and  "there  has  been no  funding  to  pay for  a                                                               
delinquent  borrower  in  the  45-year  history  of  the  bonding                                                               
program."    He  said,  "This  isn't  counted  against  the  debt                                                               
capacity of  the State of  Alaska."  He  said it is  a standalone                                                               
program similar  to that  used by other  state agencies,  such as                                                               
the Alaska Housing Finance Corporation.                                                                                         
                                                                                                                                
8:19:55 AM                                                                                                                    
                                                                                                                                
MR. MITCHELL discussed the $87.5 million  cap.  He advised it was                                                               
a creative solution to the  difficulty in funding a large capital                                                               
project on the  UAF campus:  the coal fire  power and heat plant.                                                               
The cost  of the plant  exceeded what the  state could fund  on a                                                               
cash basis and  what the university was able to  fund through its                                                               
historical revenue bond program.   The Alaska Municipal Bond Bank                                                               
was  introduced as  an  alternative.   He  said  UA still  issued                                                               
bonds,  but they  were  "privately placed  with  the bond  bank,"                                                               
which in  turn issued its bonds  in the public market  and passed                                                               
those rates  on to the  university.   The cap was  anticipated as                                                               
the  amount needed  as  the last  piece of  the  funding of  that                                                               
particular project.   He said increasing that cap  [under HB 127]                                                               
and  "eliminating   the  restriction  on  just   power  and  heat                                                               
projects"  will  provide an  alternative  for  the university  to                                                               
consider  in  the future  to  ensure  it  gets the  lowest  rates                                                               
available.                                                                                                                      
                                                                                                                                
8:21:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HANNAN    asked   whether   there    are   other                                                               
restrictions.                                                                                                                   
                                                                                                                                
MR.  MITCHELL  answered  there   are  more  restrictions  on  the                                                               
regional health  organization program than any  other category of                                                               
lending the  Alaska Municipal Bond Bank  has.  He said  there are                                                               
caps  for  every   one  of  the  Alaska   Municipal  Bond  Bank's                                                               
categories for  lending:  $1.5 billion  for municipalities, joint                                                               
action agencies,  and joint insurance associations;  $205 million                                                               
for  regional health  organizations;  and $87.5  million for  the                                                               
university.   The  current total  lending capacity,  he said,  is                                                               
$1.792  billion.   He reported  that  as of  September 2020,  the                                                               
Alaska Municipal Bond Bank had  outstanding loans of $987 million                                                               
to municipalities, joint action  agencies, and the university and                                                               
just  over $100  million to  regional health  organizations.   In                                                               
response to a  follow-up question, he said the  $1.792 billion is                                                               
"the  summation of  the other  authorizations,"  and that  amount                                                               
would increase if  other authorizations were increased.   He said                                                               
that  during his  tenure, the  amount  for municipalities,  joint                                                               
action agencies,  and joint insurance associations  has increased                                                               
five  times.   He said  when he  first started  working with  the                                                               
Alaska  Municipal  Bond Bank,  the  authority  was $125  million;                                                               
there has been significant growth  within the program in the last                                                               
20 years,  resulting in an  increase to the cap.   He said  it is                                                               
not  unusual to  come before  the  legislature to  request a  cap                                                               
increase.   He  explained one  reason the  Alaska Municipal  Bond                                                               
Bank has not asked for a  larger increase is that these are moral                                                               
obligation  bonds of  the State  of Alaska,  and it  wants to  be                                                               
fiscally prudent.   He said, "It  provides comfort to me  to have                                                               
more  contact with  the legislature  as a  program grows,  rather                                                               
than  have growth  that's less  restrictive  and has  more of  an                                                               
opportunity to deviate from what  the leadership might think that                                                               
it should be."   He said if there are  large growth projects that                                                               
come  through the  Alaska Municipal  Bond  Bank, if  HB 127  were                                                               
passed, then he is comfortable  in coming back to the legislature                                                               
to provide more information and  letting its members know how the                                                               
program might be developing.                                                                                                    
                                                                                                                                
8:26:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRAX   asked  for  confirmation  that   from  the                                                               
perspective  of the  entities, they  get a  better credit  rating                                                               
because of the state's backing of a project.                                                                                    
                                                                                                                                
MR. MITCHELL confirmed that is correct.                                                                                         
                                                                                                                                
REPRESENTATIVE PRAX  asked whether citizens are  depending on the                                                               
expertise and  integrity of  board members  and Mr.  Mitchell, in                                                               
terms of managing risk.                                                                                                         
                                                                                                                                
MR. MITCHELL answered  that is true, but noted  that the projects                                                               
also go  through a  local process, as  well as  annual reporting,                                                               
auditing, and public credit ratings.                                                                                            
                                                                                                                                
REPRESENTATIVE  PRAX  asked  if there  are  established  industry                                                               
fiduciary guidelines for the Alaska Municipal Bond Bank.                                                                        
                                                                                                                                
MR.  MITCHELL answered  that there  are,  in the  sense that  the                                                               
Alaska Municipal Bond  Bank is issuing public debt  with a credit                                                               
rating  attached.   That process  has a  wide array  of fiduciary                                                               
standards  associated with  it.   He  said he  doesn't know  what                                                               
benefit would come from deviating from the standards.                                                                           
                                                                                                                                
REPRESENTATIVE PRAX noted that school  bonds had been promoted on                                                               
the assumption  that "the  state legislature was  going to  pay a                                                               
good part of  the debt version."  He indicated  that [the public]                                                               
did not  read the fine  print that  specified the funds  would be                                                               
subject to appropriation.  Now  municipalities are concerned that                                                               
"they  are  asked  to  make   good  on  their  obligation."    He                                                               
questioned  whether  this  program   could  run  into  a  similar                                                               
situation.                                                                                                                      
                                                                                                                                
MR. MITCHELL  responded that  "the loans that  are made  to these                                                               
entities  are   structured  to  either   conform  to   a  general                                                               
obligation  bond structure  or a  revenue bond  structure or,  in                                                               
some very limited instances, a  lease revenue bond structure, and                                                               
so there are ... commitments that  are made at the borrower level                                                               
that provide  a pathway for  ensuring that any  corrective action                                                               
that's needed  is taken in  the event  of stress that  might come                                                               
down the road."  He continued:                                                                                                  
                                                                                                                                
     ... At  the local level, it  would be the same  if they                                                                    
     issued  these  bonds  independent  of  the  bond  bank.                                                                    
     Because in  ... almost all  instances - there  are some                                                                    
     limited instances  where it would be  difficult to find                                                                    
     alternative financing  - they  could do the  same thing                                                                    
     that they're doing  through the bond bank  - they would                                                                    
     just pay more.                                                                                                             
                                                                                                                                
MR. MITCHELL said when the  Alaska Municipal Bond Bank issues new                                                               
money bonds  for communities,  it asks  its financial  advisor to                                                               
calculate the savings  as a result of using  the Alaska Municipal                                                               
Bond  Bank relative  to what  the  community might  have paid  in                                                               
interest expenses  if it  had gone  outside the  Alaska Municipal                                                               
Bond Bank.  He said over  the last five years, savings approached                                                               
$100  million.   Mr. Mitchell  shared that  the Alaska  Municipal                                                               
Bond Bank  spends only  full budget authorization  if it  is very                                                               
busy issuing  a lot of bonds  and spends less when  issuing fewer                                                               
bonds; in  that way  it is  an efficient  program that  uses only                                                               
what  it needs.   He  indicated that  savings goes  directly into                                                               
Alaskans' pockets, either from decreased  taxes or decreased user                                                               
fees.                                                                                                                           
                                                                                                                                
8:34:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRAX  expressed   concern  that  "this  situation                                                               
creates an  incentive for the  borrower to borrow more  than they                                                               
otherwise would  have borrowed, because  it gives  the impression                                                               
that somebody else is securing the loan."                                                                                       
                                                                                                                                
MR.  MITCHELL responded  that  he understands  the  concern.   He                                                               
reminded Representative Prax that  the Alaska Municipal Bond Bank                                                               
is not and could not pay  anyone's debt service.  He said [bonds]                                                               
are an  alternative means of funding  a project at less  cost and                                                               
burden.  He said he understands  the angst caused by the unfunded                                                               
school  bond program;  however,  he speculated  that when  asked,                                                               
people  experiencing   that  issue  would  not   say  the  Alaska                                                               
Municipal Bond Bank falls into that same category.                                                                              
                                                                                                                                
8:36:29 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MCCARTY  said he  shares concerns similar  to that                                                               
of   Representative   Prax.      He   mentioned   the   fiduciary                                                               
responsibility  and credit  rating of  the Alaska  Municipal Bond                                                               
Bank and  necessity to ensure the  entity asking for the  bond to                                                               
be issued is credit worthy.                                                                                                     
                                                                                                                                
MR. MITCHELL  confirmed that the  ability to issue  bonds doesn't                                                               
guarantee that a  loan will be made;  fiduciary responsibility of                                                               
the seeker of the loan must  be determined.  Bonds are loans paid                                                               
100 percent of the time and on time.                                                                                            
                                                                                                                                
8:39:22 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HOPKINS asked if it  was [an accurate assessment] to say                                                               
that  Mr. Mitchell  is  there  to facilitate  lending  but has  a                                                               
responsibility to  protect the state  by ensuring  those applying                                                               
for bonds have the ability to pay.                                                                                              
                                                                                                                                
MR. MITCHELL answered yes.                                                                                                      
                                                                                                                                
CO-CHAIR HOPKINS asked the bill  sponsor if there is a difference                                                               
in HB 127  and the legislation that had been  before the previous                                                               
legislature.                                                                                                                    
                                                                                                                                
8:39:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEBON answered no.   He added that the bonding and                                                               
banking  worlds are  similar.   In  his past  banking career,  he                                                               
shared, he  participated on loans  through the  Alaska Industrial                                                               
Development and  Export Authority  (AIDEA), where the  bank could                                                               
finance from 10 percent to 50  percent, and AIDEA had the ability                                                               
to go  to the Alaska  Municipal Bond Bank  to raise its  share of                                                               
the funding.  He said banks  look for "safety and soundness" when                                                               
making loans and often seek partners  to share the risk.  He said                                                               
there  are different  entities that  could participate  in loans;                                                               
the  Alaska Municipal  Bond Bank  is  "just another  tool in  the                                                               
toolbox" for both UA and regional health organizations.                                                                         
                                                                                                                                
8:41:44 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DRUMMOND  asked Mr.  Mitchell to speak  more about                                                               
the ceiling on the bond capacity.                                                                                               
                                                                                                                                
8:42:06 AM                                                                                                                    
                                                                                                                                
MR. MITCHELL responded that current  statutes allow a ceiling for                                                               
authorizing  bonds  without  a  third-party  authorization.    He                                                               
reiterated the various ceilings that exist.                                                                                     
                                                                                                                                
REPRESENTATIVE DRUMMOND  asked if the Alaska  Municipal Bond Bank                                                               
was  close to  its  ceiling  or was  issuing  "as  many bonds  as                                                               
possible" in order to achieve its authority.                                                                                    
                                                                                                                                
MR.  MITCHELL reemphasized  that the  Alaska Municipal  Bond Bank                                                               
does not seek to issue bonds;  it tries "to fund good projects as                                                               
they come along."                                                                                                               
                                                                                                                                
8:43:56 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PATKOTAK asked  about  the UA  process in  public                                                               
engagement in approving a bond package.                                                                                         
                                                                                                                                
MR.  MITCHELL deferred  to  Mr.  Dosch, but  said  UA has  higher                                                               
standards  and  must  obtain   legislative  approval  for  larger                                                               
issuances.                                                                                                                      
                                                                                                                                
8:44:54 AM                                                                                                                    
                                                                                                                                
MR. DOSCH added that UA goes  through a due diligence process and                                                               
assesses new  projects based  on mission  and need  and capacity.                                                               
Although  UA does  not  have the  same  public obligation,  under                                                               
statute,  it must  seek legislative  approval for  any bond  that                                                               
exceeds  $2.5  million.   He  said  the  Board of  Regents  would                                                               
approve,  under   UA's  policy,   any  new  debt   issuances  and                                                               
refinancing debt; there is debt ratio that is monitored.                                                                        
                                                                                                                                
REPRESENTATIVE PATKOTAK  asked Mr. Mitchell about  the history of                                                               
debt paid.                                                                                                                      
                                                                                                                                
MR.  MITCHELL  replied  that  the  regional  health  organization                                                               
authorization  of the  Alaska Municipal  Bond Bank  is relatively                                                               
new.  He said these  organizations are defined under statute, are                                                               
typically nonprofits,  and are  associated with  tribal entities.                                                               
They  cover 3,000  square  miles of  a  region, providing  health                                                               
care.  There are 12-13  of these regional health organizations in                                                               
Alaska.   They receive funding through  compact agreements, which                                                               
have been  challenged historically.   The organizations  sued for                                                               
the payments  they were eligible  to receive, and  those lawsuits                                                               
went  all the  way to  the [U.S.]  Supreme Court.   The  regional                                                               
health organizations  prevailed, and  their funding  is automatic                                                               
at this point, Mr. Mitchell  said; therefore, it is not something                                                               
that has  any risk factors attached  to it.  The  type of funding                                                               
is significant  and in excess  of a billion  dollars a year.   He                                                               
said,  "In some  ways, they  increased that  funding by  entering                                                               
into  further agreements  for funding  of  facilities as  they're                                                               
required."  He offered an example.   He said there is significant                                                               
credit strength  through the regional health  organization sector                                                               
of the  Alaska Municipal  Bond Bank program,  but it  has existed                                                               
only since legislation was passed  in 2015 authorizing the Alaska                                                               
Municipal  Bond Bank  to lend  to regional  health organizations.                                                               
He said, "I believe the newness of  it is, in part, why there are                                                               
some of  the restrictions  that we're  asking the  legislature to                                                               
remove at  this point."  He  said the Alaska Municipal  Bond Bank                                                               
has made two  loans to the regional  health organization program,                                                               
one to  YKHC and  one to  TCC; the  former paid  on time  and the                                                               
latter paid off its loan early.   He noted that TCC could not get                                                               
an investment  grade rating  prior to  the Alaska  Municipal Bond                                                               
Bank working with  TCC to get them to restructure  how funds flow                                                               
through the organization.  He  explained that there are different                                                               
requirements  in  the  municipal  market  than  in  other  areas,                                                               
because "we're  not looking for  a title  interest on a  piece of                                                               
property,  we're looking  at a  commitment of  a revenue  stream,                                                               
which ...  takes a different  thought process."   He said  UA has                                                               
just the one project, with a  parity revenue bond, and there have                                                               
been no issues.                                                                                                                 
                                                                                                                                
8:51:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PATKOTAK  asked the amount  of TCC's debt  paid in                                                               
full, as well as an understanding of current caps.                                                                              
                                                                                                                                
MR. MITCHELL recollected that TCC  had borrowed approximately $50                                                               
million to refinance  the existing loan.  Prior to  that, TCC had                                                               
been paying almost  8 percent on the loan, and  that rate dropped                                                               
to  3.5  percent, which  he  said  equated  to "$40  million,  in                                                               
today's  dollars,  in  savings."    He  said  the  current  total                                                               
outstanding  for  the  regional   health  organizations  is  $1.7                                                               
million, so  there is  "capacity of around  $104 million  or $103                                                               
million."   He said YKHC  got a USDA  loan for $170  million, but                                                               
USDA  wanted the  project done  before it  would lend  the money;                                                               
therefore, the  Alaska Municipal Bond  Bank "coming in  with $102                                                               
million of  bond proceeds" allowed  YKHC to stage the  project in                                                               
two components  "and still get  the USDA money at  a below-market                                                               
rate."                                                                                                                          
                                                                                                                                
MR.  MITCHELL said  the restriction  related  to regional  health                                                               
organizations to fund  only 49 percent of the  project creates an                                                               
inefficiency,  because  it  requires financing  from  the  Alaska                                                               
Municipal  Bond  Bank and  a  third  party.   He  explained  this                                                               
creates a reluctance  to use the Alaska Municipal  Bond Bank even                                                               
though it might be more advantageous  to do so.  He characterized                                                               
the  regional  health  organization   facilities  in  Bethel  and                                                               
Utqiagvik as  "world-class," and he  said that is one  reason why                                                               
the Alaska Municipal Bond Bank is  asking for the increase in the                                                               
cap,  the   individual  loan,   and  the   project  participation                                                               
percentage.  He noted that  the commissioner of the Department of                                                               
Health  and Social  Services has  to determine  that the  project                                                               
will increase the  quality of health care in the  region, as well                                                               
as  save the  State  of  Alaska revenue;  this  is an  additional                                                               
factor  required  before  the  Alaska  Municipal  Bond  Bank  can                                                               
participate in a regional health organization loan.                                                                             
                                                                                                                                
8:57:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PATKOTAK  asked Mr. Mitchell to  elaborate on UA's                                                               
revenue stream guarantee that ties into loans pursued.                                                                          
                                                                                                                                
MR. MITCHELL replied that the  Alaska Municipal Bond Bank wants a                                                               
"revenue pledge"  wherein the  organization legally  binds itself                                                               
to "having revenue  flow through their organization  in a certain                                                               
way so that it  can be pledged to the bond  issue."  He described                                                               
a  "waterfall   of  revenue"  first  paying   for  operation  and                                                               
maintenance,  then  debt  service.   He  said,  "Typically  we'll                                                               
require a rate  covenant on a revenue pledge,"  which means there                                                               
must  be net  revenues  that exceed  the debt  service  due by  a                                                               
certain amount.  This ensures  revenues available in the instance                                                               
of  a "negative  event."   Mr.  Mitchell said  there are  reserve                                                               
funds put  in place to  secure bonds, typically  one year's-worth                                                               
of debt  service set aside  in an account irrevocably  pledged to                                                               
the bonds.   He offered  further details.  Furthermore,  there is                                                               
an  additional bonds  test to  ensure the  underlying entity  has                                                               
sufficient coverage.                                                                                                            
                                                                                                                                
MR. MITCHELL  said the  Alaska Municipal Bond  Bank has  a parity                                                               
pledge with UA,  which includes all of the  legal commitments the                                                               
university has with all other  outstanding bonds.  He said, "It's                                                               
viewed  as  a credit  strength,  because  you share  your  common                                                               
interest in ensuring that the  university does what it's supposed                                                               
to do with an array of bond holders."                                                                                           
                                                                                                                                
9:02:54 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PATKOTAK  mentioned the fiscal note  and asked Mr.                                                               
Mitchell  to   talk  about  management  costs   related  to  bond                                                               
packages.                                                                                                                       
                                                                                                                                
MR. MITCHELL  said there  are costs  associated with  bonds being                                                               
issued, including credit ratings, bond  councils, a law firm that                                                               
ensures the bonds  are legally binding, and  a financial advisor.                                                               
The  cost is  rolled  into the  transaction and  is  paid by  the                                                               
borrower.                                                                                                                       
                                                                                                                                
9:05:40 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  HANNAN asked  about the  origin of  the 49  percent and                                                               
total cost restrictions.                                                                                                        
                                                                                                                                
MR. MITCHELL answered that the original  bill did not have the 49                                                               
percent limit.  He said he  thinks the $102.5 [million] limit per                                                               
project was a fairness issue.   He offered his understanding that                                                               
there had been concern by  the Senate Finance Committee regarding                                                               
the evolution of the Alaska Municipal  Bond Bank to lend money to                                                               
a regional health organization, and  he said there was a learning                                                               
curve regarding  how regional health organizations  would perform                                                               
in obtaining  and committing  money.  The  bill was  modified [to                                                               
address  these  concerns], which  he  related  was acceptable  to                                                               
everyone at  the time.   He said TCC and  YKHC were able  to make                                                               
things work  out within  those restrictions.   He  proffered that                                                               
with experience  comes the ability  to improve  structures, which                                                               
is where things stand now with the proposed legislation.                                                                        
                                                                                                                                
9:09:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PATKOTAK  asked for  UA's  existing  debt to  cap                                                               
ratio.                                                                                                                          
                                                                                                                                
MR. MITCHELL responded  that he did not think he  had the answer,                                                               
but  he  said UA  did  not  use the  entire  $87.5  million.   He                                                               
estimated that  "it would  be in the  $60-$70 million  range that                                                               
would outstanding  under that  cap," but  "it's been  rolled into                                                               
the total rather than separately identified."                                                                                   
                                                                                                                                
9:10:46 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEBON  recommended  asking  Mr.  Dosch  for  that                                                               
amount.                                                                                                                         
                                                                                                                                
9:10:55 AM                                                                                                                    
                                                                                                                                
MR.  DOSCH  responded  that  he  did not  have  that  number  but                                                               
estimated it  to be  in the $70  million range.   He said  UA has                                                               
paid down principle over the last five years.                                                                                   
                                                                                                                                
9:11:20 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PATKOTAK asked  about  the history  of UA's  debt                                                               
program.                                                                                                                        
                                                                                                                                
MR.  MITCHELL said  he could  not recall  but noted  that Senator                                                               
Meyer had been on the Senate Finance Committee.                                                                                 
                                                                                                                                
9:12:36 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  SCHRAGE  opened public  testimony  on  HB 127.    After                                                               
ascertaining  that there  was no  one who  wished to  testify, he                                                               
closed public testimony.                                                                                                        
                                                                                                                                
[HB 127 was held over.]                                                                                                         
                                                                                                                                
9:13:15 AM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Community and Regional Affairs Standing Committee meeting was                                                                   
adjourned at 9:13 a.m.                                                                                                          

Document Name Date/Time Subjects
HB 127 Sponsor Statement version A 3.16.2021.pdf HCRA 4/8/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
HB 127
HB 127 version A.PDF HCRA 4/8/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
HB 127
HB 127 Sectional Analysis version A 3.16.2021.pdf HCRA 4/8/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
HB 127
HB 127 DOR Fiscal Note.pdf HCRA 4/8/2021 8:00:00 AM
HB 127
HB 127 Support Letter University of Alaska 3.9.2021.pdf HCRA 4/8/2021 8:00:00 AM
HB 127
HB 127 Letter of Support Maniilaq 3.15.2021.pdf HCRA 4/8/2021 8:00:00 AM
HB 127