Legislature(1999 - 2000)
04/13/2000 08:20 AM House CRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
April 13, 2000
8:20 a.m.
MEMBERS PRESENT
Representative John Harris, Co-Chairman
Representative Carl Morgan, Co-Chairman
Representative Andrew Halcro
Representative Lisa Murkowski
Representative Fred Dyson
Representative Reggie Joule
Representative Albert Kookesh
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 342
"An Act relating to the financing authority, payment in lieu of tax
agreements, and tax exemption for assets and projects of the Alaska
Industrial Development and Export Authority; relating to renaming
and contingently repealing the rural development initiative fund
within the Department of Community and Economic Development, and
establishing the rural development initiative fund within the
Alaska Industrial Development and Export Authority; and providing
for an effective date."
- MOVED OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 342
SHORT TITLE: AIDEA: BONDS & RURAL DEVELOPMENT
Jrn-Date Jrn-Page Action
2/07/00 2115 (H) READ THE FIRST TIME - REFERRALS
2/07/00 2115 (H) CRA, L&C, FIN
2/07/00 2115 (H) ZERO FISCAL NOTE (DCED)
2/07/00 2115 (H) GOVERNOR'S TRANSMITTAL LETTER
2/22/00 (H) CRA AT 8:00 AM CAPITOL 124
2/22/00 (H) Scheduled But Not Heard
4/13/00 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
KEITH LAUFER, Financial and Legal Affairs Manager
Alaska Industrial Development and Export Authority
480 West Tudor
Anchorage, Alaska 99508
POSITION STATEMENT: Presented HB 342.
ACTION NARRATIVE
TAPE 00-25, SIDE A
Number 0001
CO-CHAIRMAN MORGAN called the House Community and Regional Affairs
Standing Committee meeting to order at 8:20 a.m. Members present
at the call to order were Representatives Morgan, Halcro,
Murkowski, Dyson, Joule and Kookesh. Representative Harris arrived
as the meeting was in progress.
HB 342-AIDEA: BONDS & RURAL DEVELOPMENT
CO-CHAIRMAN MORGAN announced that the only order of business would
be HOUSE BILL NO. 342, "An Act relating to the financing authority,
payment in lieu of tax agreements, and tax exemption for assets and
projects of the Alaska Industrial Development and Export Authority;
relating to renaming and contingently repealing the rural
development initiative fund within the Department of Community and
Economic Development, and establishing the rural development
initiative fund within the Alaska Industrial Development and Export
Authority; and providing for an effective date."
Number 0095
KEITH LAUFER, Financial and Legal Affairs Manager, Alaska
Industrial Development and Export Authority (AIDEA), informed the
committee that there should be a sectional analysis of HB 342 and
thus he would only highlight the major portions of the bill. He
specified that HB 342 has three main elements. First, HB 342
extends AIDEA's general bonding authority that would otherwise
sunset July 1, 2000. Second, HB 342 transfers the Rural
Development Initiative Fund Loan Program from the Department of
Community & Economic Development (DCED) to AIDEA. Third, HB 342
makes some technical changes to existing provisions which deal with
tax exemptions and payment in lieu of tax agreements between local
municipalities and the users of AIDEA's development finance
projects.
MR. LAUFER turned to the bonding sunset. He noted that AIDEA's
general bonding authority has been subject to periodic sunsets for
many years. The current sunset is effective July 1, 2000, and
would prevent AIDEA from issuing all bonds other than refunding
bonds, regardless of size without specific legislative approval.
The sunset would prevent AIDEA from issuing bonds for development
finance projects under $10 million. Bonds greater than $10 million
currently require and will continue to require specific legislative
authorization. Furthermore, the sunset would prevent AIDEA from
issuing conduit revenue bonds. Conduit revenue bonds can be issued
by AIDEA and do not obligate AIDEA's assets or the state's assets,
but can allow qualified projects to receive low-cost tax exempt
financing. He pointed out that HB 342 would extend the sunset to
July 2003 and clarify that conduit revenue bonds will not be
subject to the sunset.
Number 0286
MR. LAUFER turned to the second major portion of the HB 342, which
would transfer the Rural Development Initiative Fund Loan Program
to AIDEA. This program was formerly in the Department of Community
& Regional Affairs (DCRA) and was transferred to the new
department, DCED. He explained that this program allows for small
loans to businesses and communities of less than 5,000. This
program has long been supported by AIDEA as [the program] has
utilized AIDEA's loan guarantee program, the business assistance
program, in conjunction with the program in order to make both
programs more effective. Furthermore, in 1993 and 1996 the
legislature authorized AIDEA to purchase loan portfolios from the
state and use the proceeds from those purchases to recapitalize the
Rural Development Initiative Fund. Therefore, transferring the
program to AIDEA would further AIDEA's mission and additionally
will allow the program to become self-sustaining without the need
of periodic legislative appropriations to recapitalize the fund.
He commented that AIDEA will continue to work with the department
to administer the program. Mr. Laufer informed the committee that
a separate appropriation will be required to authorize AIDEA to
purchase the existing loan portfolio, which causes much of the
complexity of the bill as the old program will not be repealed
until AIDEA has an opportunity to purchase the loan portfolio.
MR. LAUFER continued with the final portion of HB 342, which
relates to the tax exemption for AIDEA-owned development finance
projects. Under existing law, local jurisdictions can exempt users
of AIDEA's projects from local property tax or allow for the entry
into payment in lieu of tax (PILOT) agreements for these projects.
However, current law is not clear on the mechanisms that are to be
used for those tax exemptions. Therefore, the bill offers the
following two specific corrections. He explained that the existing
law speaks to AIDEA entering into payment in lieu of tax agreements
with project users. However, in actuality, the payment in lieu of
tax agreements would be between the users of the projects and the
local jurisdictions. That is corrected by HB 342. With regard to
other elements corrected by the bill, he explained that existing
law speaks to tax exemptions for these projects, although there is
no mechanism in law that provides for a specific exemption that
municipalities could grant to these AIDEA-owned projects. The bill
corrects that by creating a specific exemption that municipalities
can grant for these projects.
Number 0515
CO-CHAIRMAN MORGAN inquired as to where rural Alaska would fit in
AIDEA with regard to the statewide energy plan.
MR. LAUFER explained that AIDEA is working on the statewide energy
plan in conjunction with the Denali Commission. There is no
specific program that provides for it other than in AIDEA's
existing general authority to work cooperatively with other
agencies. Mr. Laufer noted that this statewide energy plan has
been divided into three regions, of which the rural region is
advancing first. He informed the committee that the phase one
analysis, which was predominantly an inventory of existing
information, has been completed. The [statewide energy plan] is
moving into phase two. Phase two will utilize a contractor to help
develop a plan that identifies the various options and makes
recommendations in regard to the issues surrounding rural Alaska
[and energy].
CO-CHAIRMAN MORGAN asked if Mr. Laufer could provide some examples
of conduit [revenue] bonds.
MR. LAUFER cited the following as examples of conduit [revenue]
bonds: a $71 million bond issue for the Fort Knox Gold Mine; a $23
million issued for the Goat Lake Hydroelectric project; a $2.2
million bond for the American Red Cross; and a bond for the
Association of Village Council Presidents.
MR. LAUFER explained, in response to Representative Dyson, that the
bond to the American Red Cross was for a building to house their
offices in Anchorage. The American Red Cross is a nonprofit tax
exempt entity and thus they qualify for tax exempt financing under
the Internal Revenue Code, which requires a governmental issue for
which AIDEA qualifies. The bond for the Association of Village
Council Presidents was a similar situation in that the bond was for
their offices in Bethel.
Number 0765
REPRESENTATIVE DYSON asked if either of those entities could have
obtained a reasonable commercial loan.
MR. LAUFER replied, "Not a tax exempt interest rate without a
governmental issuer." He explained that under the Internal Revenue
Code the interest is paid to the ultimate buyer of these bonds,
which is typically a bank for these small bonds. The interest the
bank receives is not subject to federal income tax and thus the
bank for the bondholder can charge a lower interest rate than it
otherwise would. However, in order to obtain that benefit there
has to be a qualified governmental issuer that issues the bond and
in this case, AIDEA is the qualifying governmental issuer.
REPRESENTATIVE DYSON asked if either of those entities could have
qualified for a commercial loan.
MR. LAUFER answered yes. He related his belief that in both of
these loans, the ultimate lender was a commercial bank. In further
response to Representative Dyson, Mr. Laufer said that the delta
between the interest rates of a commercial loan and an AIDEA loan
would depend upon market conditions. However, [the difference
between the interest rates] would typically vary from 1 to 2
percent. He specified that ultimately that would be between the
bondholder, the bank, and the borrower. He noted that AIDEA
doesn't have any liability for the debt or face any risk if the
borrower was to default.
Number 0906
REPRESENTATIVE DYSON asked if in these cases, the American Red
Cross and the Association of Village Council Presidents, were the
recipients of the loan financially strong enough to qualify with a
commercial bank.
MR. LAUFER responded in the affirmative. He informed the committee
that in this case, they went through an underwriting process with
the banks and qualified through them. Therefore, it was both the
bank and the borrower who came to AIDEA and requested that AIDEA
issue the bonds.
REPRESENTATIVE DYSON related his understanding, "So what AIDEA is
... doing is ... laundering the loan papers so that they can get to
be tax exempt."
MR. LAUFER said that he wouldn't use the word "launder." He felt
that [AIDEA] is acting in accordance with the Internal Revenue Code
in order to provide tax exempt financing.
Number 0982
REPRESENTATIVE MURKOWSKI reviewed her understanding. She
understood that first there will be an appropriation to authorize
AIDEA to purchase the portfolio. Once that is accomplished, DCED's
program is repealed, but then AIDEA will contract with DCED to
administer the program.
MR. LAUFER agreed with her understanding. He pointed out that the
existing fund in DCED cannot be repealed while assets remain in
that fund. Therefore, the delayed repealor is necessary as well as
the provisions that affect that repeal "only upon the purchase of
the assets." He specified that it will become an AIDEA-owned
program; however, AIDEA intends to work with the department [DCED]
to administer the program. The department has been successful in
administering the program, but the problem has typically been the
flow of assets through the program. Furthermore, once loans were
made the department didn't have a true revolving loan fund program
that could continue. Therefore, it is [AIDEA's] intent to continue
to work with the department in order to administer the program as
a program within AIDEA.
REPRESENTATIVE MURKOWSKI remarked that it seems awkward to move
everything to AIDEA, when the entity that [the program] is being
taken from is going to still administer the program. However, she
surmised that the purpose being sought is to have the financial
accountability within AIDEA.
MR. LAUFER agreed with Representative Murkowski's assessment of the
intent being sought. He mentioned that has and continues to be an
integral part of the loan approval process, even when located in
[the Department of] Commerce. He reiterated that AIDEA has been
working closely with DCED for many years. He continued by saying
"So the mechanism we're using is to reflect the fact that its been
AIDEA that's been, through legislative appropriations, ... funding
the program and ... by moving the assets within AIDEA, we can make
it a true revolving fund program so we don't have this difficulty
with not having sufficient funds to meet the needs." In response
to Representative Murkowski, Mr. Laufer agreed that [the program]
is not really being changed that much.
Number 1152
CO-CHAIRMAN HARRIS asked if HB 342 or similar legislation doesn't
pass, would AIDEA's bonding authority end.
MR. LAUFER replied yes. He explained that AIDEA would need
specific legislative authorization for every bond other than
refunding bonds, which are basically refinances. [This legislative
authorization would be required] regardless of the size or type of
bond.
CO-CHAIRMAN MORGAN inquired as to whether there are any major
projects in the planning or development stages that would be
hampered if the legislature failed to act on HB 342.
MR. LAUFER related his belief that there are several conduit
financing bonds that are in the works, which he believes would be
hampered [if the legislature failed to act on HB 342].
Additionally, it is likely that there could be development finance
projects that would be hampered. He said that he didn't have the
specific information to provide the committee. Mr. Laufer informed
the committee that there are other projects, larger development
finance projects, that are further along and the legislature has
already granted specific approval and thus those projects wouldn't
be impacted by the failure to pass HB 342.
CO-CHAIRMAN MORGAN turned to the infrastructure for rural Alaska
and asked how [AIDEA] would make that more efficient.
MR. LAUFER commented that AIDEA has done a number of projects in
rural Alaska, with regard to infrastructure. He cited the Red Dog
Road and port, the DeLong (ph) Mountain Transportation System as
examples. Additionally, AIDEA, under its loan programs, has done
a variety of loans in rural Alaska such as the loan for the Alaska
Commercial Company.
CO-CHAIRMAN MORGAN asked if there were any further questions and if
there was anyone else who wished to testify, there were none.
Therefore, Co-Chairman Morgan closed public testimony. He noted
that there is an amendment that he would like to offer.
Number 1400
CO-CHAIRMAN HARRIS moved that the committee adopt Amendment 1,
which reads as follows:
Page 1, line 6, following ";":
Insert "relating to staff of the Alaska Energy
Authority;"
Page 2, following line 24:
Insert new bill sections to read:
"* Sec. 5. AS 44.83.040(a) is amended to
read:
(a) [THE CHAIR AND VICE-CHAIR OF THE ALASKA
INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY SHALL SERVE
AS OFFICERS OF THE ALASKA ENERGY AUTHORITY.] The powers of the
Alaska Energy Authority are vested in the directors, and three
directors of the authority constitute a quorum. Action may be
taken and motions and resolutions adopted by the Alaska Energy
Authority at a meeting by the affirmative vote of a majority of the
directors. The directors of the Alaska Energy Authority serve
without compensation, but they shall receive the same travel pay
and per diem as provided by law for board
members under AS 39.20.180.
* Sec. 6. AS 44.83 is amended by adding a new section to
article 1 to read:
Sec. 44.83.051. Executive director and staff;
administration. (a) The authority shall appoint an executive
director as the authority's executive officer. The authority shall
delegate supervision of the administration of the authority to the
executive director of the authority. The executive director is a
member of the exempt service under AS 39.25.110, serves at the
pleasure of the authority, and receives compensation fixed by the
authority.
(b) The executive director appoints persons to the
staff positions authorized by the authority, and staff
compensation is fixed by the authority. Employees of the authority are
(c) The authority may contract for legal and bond
counsel, consultants, experts, and financial and
technical advisors that the authority considers necessary for the
conduct of studies, investigations, hearings, or other
proceedings."
Renumber the following bill sections accordingly.
Page 5, line 15:
Delete "sec. 10"
Insert "sec. 12"
Page 5, line 16:
Delete "sec. 10"
Insert "sec. 12"
Page 5, line 19:
Delete "sec. 9"
Insert "sec. 11"
Page 5, line 29:
Delete "sec. 10"
Insert "sec. 12"
Page 5, line 30:
Delete "sec. 10"
Insert "sec. 12"
Page 6, line 1:
Delete "sec. 10"
Insert "sec. 12"
Page 6, following line 2:
Insert a new subsection to read:
"(e) Employees of the Alaska Industrial Development and
Export Authority who are responsible for rural energy programs
shall be transferred to the Alaska Energy Authority when the
Alaska Energy Authority requests the transfer of those
employees."
Page 6, line 3:
Delete "Section 5"
Insert "Section 7"
Page 6, line 4:
Delete "Sections 10 and 11"
Insert "Sections 12 and 13"
Page 6, line 8:
Delete "secs. 10 and 11"
Insert "secs. 12 and 13"
Delete "sec. 13"
Insert "sec. 15"
Page 6, lines 8 - 9:
Delete "secs. 10 and 11"
Insert "secs. 12 and 13"
Page 6, line 14:
Delete "secs. 12 - 14"
Insert "secs. 14 - 16"
REPRESENTATIVE MURKOWSKI objected.
CO-CHAIRMAN MORGAN explained that Amendment 1 would create an
independent rural energy program under the auspices of the Alaska
Energy Authority (AEA); this [program] would be separate from
AIDEA's authority. He outlined the following powers of authority:
Create separate and clear lines of authority and powers
currently established under AS 44.83.020-.995 and HB 40
(Ch 58, SLA 99, Section 66) and the Rural Energy Programs
under AS 42.45 for AEA.
Establish Executive Director position for AEA, reporting
to the AEA Board of Directors. The Executive Director
shall answer to the Board and may employ staff, legal and
bond counsel, consultants, experts, et cetera, as needed
for the operation of the Authority.
Transfer employees currently housed under AIDEA to
positions to be established under AEA for the
administration of the programs.
Delete authority of the AIDEA chair and vice-chair as
officers of the Alaska Energy Authority (AS 44.83.040).
CO-CHAIRMAN MORGAN clarified that Amendment 1 isn't creating
another board because "the AIDEA board will just take off their
hats and put on their Alaska Energy Authority hats." The same five
[members] will be on the AIDEA board as well as the AEA board.
Number 1552
REPRESENTATIVE MURKOWSKI asked, "Why are we moving it out of the
auspices of AIDEA and into AEA?"
CO-CHAIRMAN MORGAN related his belief that AEA deals specifically
with rural Alaska and the smaller projects such as tank farms and
power upgrades. On the other hand, AIDEA [deals with] larger
[projects] that are statewide in scope. Co-Chairman Morgan felt
that [the rural areas] are getting lost and rural Alaska is being
disenfranchised and losing the only conduits that they had last
year. He believes that the Denali Commission was working well up
to last year and now the commission is being hampered. He noted
that he has letters from the North Slope to Southeast and Western
Alaska which indicate this.
REPRESENTATIVE MURKOWSKI recalled that it has been under the
auspices of AIDEA and separate from AEA for less than year.
Therefore, she asked if, in that short time, Co-Chairman Morgan has
received concerns from constituents that AIDEA has been less than
responsive towards rural needs. She asked if this has been a
problem or should we in fact give AIDEA time to pull it together.
CO-CHAIRMAN MORGAN answered that he has some correspondence.
Number 1694
REPRESENTATIVE KOOKESH commented that he has decided that if [the
legislature] doesn't move AEA out of AIDEA this year, that he will
do everything he can to do so next year. Representative Kookesh
reminded the committee that he was supportive of moving AIDEA from
DCRA last year because he thought [the rural areas] would have a
direct line of communication through AIDEA. However, that has not
been the case. On a personal basis, Representative Kookesh
remarked that he has "had a lot of trouble with AIDEA." He noted
his observation that it's almost like a turf war and that is more
important than the concerns of rural Alaska. He echoed Co-Chairman
Morgan's comments with regard to being unhappy with the response
from AIDEA. Furthermore, he felt that, in the last few days, the
Denali Commission has received negative response from AIDEA, which
is unfortunate. He pointed out that the Denali Commission has
spent more money on projects through AEA and Mr. Frisby's office
than anywhere else in Alaska. It was because Mr. Frisby's
involvement with AEA that the Denali Commission spent the money it
did [with AEA]. Representative Kookesh commented that this is one
of the few areas in the [consolidation of the departments] that he
has been unhappy with. Although he was never supportive of
combining the departments, he agreed to it eventually because of
his belief that it would help rural Alaska, which has been the case
in most instances. He related his belief that energy is getting
lost in AIDEA, which is unfortunate especially in rural Alaska. He
stated that he believes Co-Chairman Morgan's amendment is a good
amendment that should go forward. Representative Kookesh concluded
by emphasizing the need for a statewide energy policy, which will
never happen as long as "we" are lost in the bureaucracy of AIDEA.
REPRESENTATIVE HALCRO noted the sunset of AIDEA's bonding authority
if HB 342 is not passed. He expressed concern with the possibility
of weighing down this bill such that it doesn't go anywhere once
the bill is reported out of this committee. However, the Governor
has just introduced legislation regarding the sale of the Four Dam
Pool and the creation of the PCE Endowment, which he felt would be
a better vehicle to attach an energy authority with a funding
source. Therefore, there would be a separate authority/power which
will oversee the funding source that will fund PCE. Representative
Halcro stated that he could support that; however, he expressed
concern that without HB 342 AIDEA's bonding authority will sunset
until the legislature convenes in January [2001].
REPRESENTATIVE KOOKESH remarked that Representative Halcro's idea
is a good idea. He, too, was concerned with the bonding capability
of AIDEA in relation to the passage of HB 342. Therefore,
Representative Kookesh said that he just wanted to see it happen.
Number 1980
REPRESENTATIVE JOULE agreed that Representative Halcro's suggestion
is an appropriate solution. He turned to the reason behind
Co-Chairman Morgan's amendment. When the Denali Commission was
formed, the only reason it could address energy issues was because
it was the only place with something on paper that was ready to be
implemented. However, since this transfer [combining of the
departments] has occurred, the need for the statewide energy plan
[may be] getting weighted down by some of the issues that
Representative Kookesh referred to. Representative Joule commented
that if [the statewide energy plan] doesn't happen soon, there will
be missed opportunities.
REPRESENTATIVE JOULE turned to the Division of Energy and its
importance to rural Alaska. In his experience with that division,
that division was very good in responding to the communities in an
extremely timely manner. He believes that the communities felt
like there was something in state government that was listening and
acting. Therefore, to make it stand alone would highlight and
illustrate its importance.
REPRESENTATIVE JOULE remarked that one of the reasons he didn't
support the merger until the final vote was because of the promise
that those components serving rural Alaska would not get lost.
However, there seems to be a struggle that is hampering that.
Representative Joule acknowledged that HB 342 does need to move
forward as it does some really good things and perhaps [Co-Chairman
Morgan's amendment] should be placed in other legislation.
Number 2196
REPRESENTATIVE HALCRO suggested that the committee as a whole
present an amendment [regarding AEA] to House Finance [when the
Governor's legislation is heard]. He pointed out that when the PCE
funding source [materializes] with the sale of the Four Dam Pool,
it only makes sense to have an authority to manage the revenue
source.
REPRESENTATIVE DYSON surmised that Co-Chairman Morgan was losing
support for his amendment. He informed the committee that he can't
vote on [the amendment] this quickly as it is a significant change.
Furthermore, he expressed the need to hear from the Administration
on this [change].
CO-CHAIRMAN MORGAN announced that he would proceed with
Representative Halcro's suggestion to present this later.
CO-CHAIRMAN HARRIS withdrew his motion that the committee adopt the
amendment.
Number 2285
REPRESENTATIVE DYSON moved to report HB 342 out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, it was so ordered and HB 342 was reported
from the House Community & Regional Affairs Standing Committee.
REPRESENTATIVE DYSON commented that he hoped AIDEA received the
message to be more responsive.
ADJOURNMENT
There being no further business before the committee, the House
Community & Regional Affairs Standing Committee meeting was
adjourned at 8:55 a.m.
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