Legislature(1995 - 1996)
03/29/1996 01:50 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
MARCH 29, 1996
1:50 P.M.
TAPE HFC 96 - 101, Side 1, #000 - end.
TAPE HFC 96 - 101, Side 2, #000 - end.
TAPE HFC 96 - 102, Side 1, #000 - #576.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:50 P.M.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring
ALSO PRESENT
Representative Jerry Mackie; Representative Kim Elton;
George Dozier, Staff, Representative Pete Kott; Randy
Simmons, Alaska Industrial Development & Export Authority
(AIDEA), Development and Finance Manager, Anchorage; Keith
Walker, Assistant Attorney General, Department of Law; Tom
Williams, Staff, Senator Steve Frank; Ron King, Chief, Air
Quality, Department of Environmental Conservation; Juanita
Hensley, Chief, Driver Services, Division of Motor Vehicles,
Department of Public Safety; Jan Sieberts, (Testified via
teleconference), National Bank of Alaska, National Bankers
Association, Anchorage.
SUMMARY
HB 526 An Act relating to the financing authority,
programs, operations, and projects of the Alaska
Industrial Development and Export Authority;
providing an exemption from the procurement code
for certain projects of the authority; and
providing for an effective date.
CS HB 526 (FIN) was reported out of Committee with
"no recommendations" and with a zero fiscal note
by the Department of Commerce and Economic
Development dated 3/18/96.
SB 226 An Act relating to biennial registration of motor
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vehicles; imposing biennial registration fees on
motor vehicles and authorizing a scheduled
biennial municipal tax on motor vehicles; relating
to fees for motor vehicle emissions control
programs; and providing for an effective date.
SB 226 was HELD in Committee for further
consideration.
HB 394 An Act authorizing a program of natural gas and
coal bed methane development licensing and
leasing; relating to regulation of certain natural
gas exploration facilities and coal bed methane
exploration facilities for purposes of preparation
of discharge prevention and contingency plans and
compliance with financial responsibility
requirements; amending the duties of the Alaska
Oil and Gas Conservation Commission as they relate
to natural gas exploration activities and coal bed
methane exploration activities; and amending the
exemption from obtaining a waste disposal permit
for disposal of waste produced from coal bed
methane drilling.
HB 394 was rescheduled for April 2, 1996.
HB 528 An Act relating to applications for certificates
of need and licensing of nursing homes; amending
the standard of review for certificates of need
for health care facilities in the state;
establishing a moratorium with respect to new
applications by prohibiting the issuance of a
certificate of need or a license for additional
nursing home capacity in the state until July 1,
1998; and providing for an effective date.
HB 528 was rescheduled for April 2, 1996.
HOUSE BILL 526
"An Act relating to the financing authority, programs,
operations, and projects of the Alaska Industrial
Development and Export Authority; providing an
exemption from the procurement code for certain
projects of the authority; and providing for an
effective date."
GEORGE DOZIER, STAFF, REPRESENTATIVE PETE KOTT, stated that
the Alaska Industrial Development & Export Authority (AIDEA)
was created to promote employment in Alaska through a
variety of tools. Among others, the tools consist of the
Development Assistance Program, the Loan Participation
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Program and the Business Assistance Program. Properly
utilized, these mechanisms create a potential of having a
positive impact on the economy of Alaska. Changes in
economic, legal, and financial conditions have made it
desirable to examine several statutory provisions pertaining
to AIDEA. The legislation would address a variety of issues
presented by those changed conditions.
RANDY SIMMONS, DEVELOPMENT AND FINANCE MANAGER, ALASKA
INDUSTRIAL DEVELOPMENT & EXPORT AUTHORITY (AIDEA),
ANCHORAGE, noted that HB 526 would restore AIDEA's bonding
authority for projects greater than $10 million dollars
without coming to the Legislature for approval. June 30,
1995, a sunset provision was implemented in which all
AIDEA's bonding authority was taken away. During this past
year, a project became available for participation but
without the bonding authority, AIDEA was not able to finance
the revenue bonds for the Fort Knox Gold Mine in Fairbanks.
Mr. Simmons requested that the language return to what it
was prior to sunset. The language would apply to Page 1,
Lines 11 & 12, deleting "if those bonds would affect the
credit of the authority" and inserting "to assist in the
financing of a development project under AS 44.88.172 -
44.88.177". The language is contained in Amendment #1, 9-
LS1549\C.1, Cook, 3/28/96. [Copy on file]. It would allow
AIDEA to perform bonding for projects under $10 million
dollars, which would re-establish the conduit financing and
bonds tied to loan participation programs. All projects
over $10 million dollars would continue to require
legislative authority.
Representative Brown questioned what "conduit financing"
was. Mr. Simmons replied that conduit financing was another
term for revenue bond financing. AIDEA's credit would not
be "on the line" but rather the sponsor's credit would be on
the line. A floating bond could not be sold unless the
purchaser was assured that there was enough revenue being
generated from that project to pay for it.
Mr. Simmons explained that any limit could occur on revenue
financing, because the State's credit would not be on line.
For those bonds less than $10 million dollars, AIDEA could
go without authorization, although, their credit would be on
the line. All bonds $10 million dollars or less would be
the same and AIDEA's credit would be exposed. In those
situations, the proposer of the project's credit would be
scrutinized and a feasibility study of the projected
revenues would be provided.
KEITH WALKER, ASSISTANT ATTORNEY GENERAL - AIDEA, DEPARTMENT
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OF LAW, clarified that none of the bonds issued by AIDEA
affect the credit of the State; they only affect the assets
of AIDEA. Representative Brown argued that the State would
have a moral obligation if there was default.
Co-Chair Foster MOVED to adopt Amendment #1. There being NO
OBJECTION, it was adopted.
Mr. Simmons remarked that the second change assisting AIDEA
in economic development would be to the Business Assistance
Program. At this time, AIDEA can guarantee up to 80% of a
bank originated loan to an Alaskan business, or up to $1
million dollars under the Business Assistance Program.
Maximum interest rate is Prime plus 2 3/4% fully floating.
AIDEA also offers a streamlined approval process for
guarantees on unsecured loans of $75 thousand dollars or
less aimed at assisting entrepreneurs in rural areas,
although, available to all Alaskans.
He noted that program is not often used. The federal
government's Small Business Program (SBA) has been the
preferred program used by most small business. Provisions
in the AIDEA package are not as "friendly" as the federal
package. Last year, the feds changed the way that they
administer that program. Consequently, the program has
become "too expensive" for many small business
entrepreneurs. Alaskan banks have approached AIDEA,
encouraging them to change their Small Business Assistance
Program making it "more useable" for small business. The
two changes requested by the banks are:
1. Changing the provision which allows
AIDEA to guarantee that should a loan go
into default, they would pay the
interest for a three month period; that
provision would mirror the SBA program
which allows the banks a specified
period to liquidate the loan.
2. Changing the majority ownership rule,
which would help keep the jobs in the
State.
Representative Brown questioned if some percentage of the
business interest should be required holding by Alaskans.
Mr. Simmons advised that the need was to "employ" Alaskans,
as the provisions are now written. The mission of AIDEA is
to increase economic development and to foster job creation
within Alaska.
Mr. Simmons continued, the Business Assistance Program can
make loans for working capital and equipment up to $1
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million dollars. AIDEA stipulates that collateral does not
need to be provided for loans up to $100 thousand dollars if
the borrowers credit history is good.
JAN SIEBERTS, (TESTIFIED VIA TELECONFERENCE), NATIONAL BANK
OF ALASKA, NATIONAL BANKERS ASSOCIATION, ANCHORAGE,
commented that NBA supports HB 526. He expressed his
frustration in working with AIDEA on specific projects
because of bonding complications.
Mr. Simmons addressed authorization for two specific
projects as indicated in Sections #18 and #19. The first
project would be a facility expansion - DeLong Mountain
Transportation System. The Alaska Industrial Development
and Export Authority received a request from Cominco Alaska,
Inc. (CAK) to increase the bond authorization for an
expansion of the DeLong Mountain Transportation System
(DMTS) from $60 million dollars to $85 million dollars. The
request resulted from an increased authorization revised
budget brought about by a recently completed re-evaluation
of the ore grade at that mine. The scope of construction
has been defined through preliminary engineering, and
sufficient monetary reserves have been established for AIDEA
to feel comfortable that the Project could be completed for
the bond authorization requested.
Co-Chair Hanley pointed out that Amendment #2, 9-LS1549\C.2,
Cook, 3/28/96, was written to address that request. [Copy
on file].
Co-Chair Hanley asked who would own the facility after it
was built. Mr. Simmons replied that the State would own the
port facility and Cominco Alaska, Inc. (CAK) would own the
facility at the mine. Terms will be established with CAK
which will set user fees to pay for all the bonds and for
the reserves on the bonds. He stressed that AIDEA will not
be at risk on the project.
Representative Therriault asked what protection the State
would have if the price of ore decreases. Mr. Simmons
advised that when the bonds are issued, a bond debt reserve
would be established to guarantee that payment continues to
be made; a letter of credit is also issued.
In response to Representative Therriault's query regarding
the product, Mr. Walker explained that the ore body was
processed in such a manner to produce a zinc and lead
concentrate and then both products are shipped out.
Representative Brown asked why the State needed to be
involved. Mr. Simmons replied that for the facilities owned
by the State, the benefit of AIDEA floating the bond would
provide tax exempt financing, so that the cost would be
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lower. This is a State owned facility. Representative
Kohring echoed Representative Brown's concern of the State's
involvement in the project. He thought that it appeared as
though the State was intending to float cheaper bonds than
the private sector, placing the State in competition with
private industry.
Mr. Simmons replied that financial institutions in Alaska
normally do not provide this size funding long term. AIDEA
tries to fill a capital gap; they never try to compete with
the private sector. He concluded that AIDEA has a very good
relationship with the banks in Alaska and is often partners
with them in loan packages.
Representative Brown questioned the risk of the project.
Mr. Simmons discussed that the margin is getting better and
that the price of zinc is increasing. He thought that the
quality and volume of zinc from this mine would be superior.
Mr. Walker added, CAK has an excellent record in local hire
provisions. AIDEA closely monitors that concern within
business projects funded through them. Representative
Martin agreed that CAK has a very good local hire record.
Mr. Simmons explained that AIDEA accounts require two types
of feasibility stipulations:
1. Contract consultants will determine if the
mining activities are feasible.
2. Financial managers provide a thorough credit
history check, then providing an opinion on
the credit worthiness, as required by
statute.
(Tape Change, HFC 96-101, Side 2).
Representative Brown questioned how much of AIDEA's credit
worthiness would be at stake if this project failed. Mr.
Simmons replied that today, AIDEA with their restricted and
unrestricted assets, is close to a $1 billion dollar
operation. If this project totally collapsed, it would
definitely affect AIDEA, although, they would continue to be
in business. That type of action would cause the rating
agencies to more closely scrutinize AIDEA.
Representative Therriault MOVED to adopt Amendment #2.
There being NO OBJECTION, it was adopted.
Mr. Simmons provided information on the moral obligation of
the State for the purchase of the Snettisham hydroelectric
project. He stated that there are market and policy related
reasons for requesting that the Snettisham bonds be issued
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as State moral obligation bonds rather than as AIDEA general
obligation bonds. Originally, it was intended for Alaska
Electric Authority (AEA) to purchase Snettisham. When the
assets of that authority were split apart and the
stewardship was placed under AIDEA, it was agreed that AIDEA
would assume the obligation.
The project would amount to $100 million dollars. The
benefits would provide rate stability for the users of the
area. If the State does not buy Snettisham, the federal
government would look to divest the power projects. Most
likely, it would be sold to the private sector which would
cause the rates to go up immediately. AIDEA will not
operate the facility. They will enter into a long term
contract with the Juneau utility, where they agree to
purchase all the power from Snettisham. Rates will be
established for paying back the bond, paying into repair and
maintenance funds, insurance funds, and making sure that
AIDEA's exposure is limited.
Co-Chair Hanley asked the purchase price. Mr. Simmons
stated that to determine the purchase price, a formula based
on interest rates is used to actually float the bonds which
establishes the actual purchase price. The actual purchase
price right now is estimated to be $80 million dollars.
High enough bonds have to be set up to service reserves in
order to pay off the bonds and to provide a float rate.
Mr. Simmons continued, when bonding occurs, reserves have to
be set up immediately. AIDEA will bond for a little more
than the actual purchase price in order to set up the
reserves which is a requirement for selling the bond.
Representative Martin asked if it would be possible to
separate the two proposals. Mr. Simmons replied that it was
important to AIDEA that both projects be funded. He pointed
out that Senator Stevens and Senator Murkowski have been
working on the project for ten years. Representative
Grussendorf spoke in support of the Snettisham project.
Co-Chair Hanley asked why Juneau was not providing the
financing for the purchase. Mr. Simmons replied that the
utility here does not have the "where with all" of the three
combined utilities in Anchorage, pointing out that it is a
small, privately owned utility. Initially, the only way to
get federal government legislation passed in matters of
hydroelectric power, was that a government entity or a
utility coop owned by the people, purchase the project. He
stressed that restriction exists in the bill.
Representative Brown referenced the letter from AIDEA to Ms.
Anne Ringstad, Senate State Affairs Committee, Staff to
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Senator Bert Sharp, discussing the "moral obligation" of the
purchase. Representative Brown asked if AIDEA was concerned
with investing in two large projects, thus having that
capability of consuming the bulk of outstanding debt. Mr.
Walker agreed that there is concern in having over 2/3rds
the outstanding bonds tied up with two projects, pointing
out that it will create a concentration that the rating
agencies and the financial institutions would look at
closely.
Co-Chair Hanley asked if that would influence the State's
capacity. Mr. Simmons thought it would have some effect.
The State only has so much capacity. Fortunately, with the
Alaskan reserves, the capacity is expanded. The State's
moral obligation will be "on line". The use agreements with
Alaska Electric Light and Power (AELP) will protect that
concern having the reserves established and the credit
enhancements.
Co-Chair Hanley inquired who would have the authority to
raise the rates. Mr. Simmons explained that determination
would be handled through the negotiation process. Through a
risk analysis, AIDEA will determine a reasonable amount to
be set aside each year for repair, replacement and
operations. AELP will be responsible for any amounts which
fall outside of those predetermined costs.
Representative Martin asked if both projects needed to be
contained in the same legislation. Mr. Simmons responded
that it was important to have both issues addressed in HB
526. The Legislature's safety net is that these are
development finance projects which will require all the same
statutory provisions including a feasibility and review
study. If all concerns are not adequately addressed, the
projects will not go through.
Co-Chair Hanley voiced concern with the amount of the
request. He asked if an economic study had been provided.
Mr. Simmons stated that AIDEA has only done preliminary work
to date. Diesel would be twice as expensive for the rate
payers, as would building a new hydro-project. He concluded
that determination of the fair market value of the project
was formula driven.
In response to Representative Grussendorf's question, Mr.
Simmons explained that the life expectancy of a dam is
normally longer than time used in the contract. He added,
consideration of life expectancy is a maintenance issue,
although, most dams last well over fifty years.
Representative Brown questioned how these purchases would
fit with the State's policy to "get-out of the hydro
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business". Mr. Simmons stated that this project would need
to be sold at fair market value, indicating that AIDEA would
be happy to sell it to the local utilities.
(Tape Change, HFC 96-102, Side 1).
Co-Chair Hanley asked if this was the only AIDEA project
where the moral obligation had been pledged. Mr. Walker
stated that it was the only one pledged since 1989. Mr.
Simmons advised that currently, the total AIDEA obligation
was $115 million dollars, also bonds for Red Dog total $103
million dollars, and $85 million dollars for the Healy
project.
Co-Chair Foster MOVED to report CS HB 526 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. Representative Martin suggested
that the question be split. Co-Chair Hanley stated that an
amendment would need to be written to address that concern.
Mr. Simmons reminded the Committee that the legislation has
been a priority to both Senator Stevens and Senator
Murkowski for the past ten years. There being NO OBJECTION,
it was so ordered.
CS HB 526 (FIN) was reported out of Committee with "no
recommendations" and with a zero fiscal note by the
Department of Commerce and Economic Development dated
3/18/96.
SENATE BILL 226
"An Act relating to biennial registration of motor
vehicles; imposing biennial registration fees on motor
vehicles and authorizing a scheduled biennial municipal
tax on motor vehicles; relating to fees for motor
vehicle emissions control programs; and providing for
an effective date."
TOM WILLIAMS, STAFF, SENATOR STEVE FRANK, stated that SB 226
would require motor vehicle registration to be renewed once
every two years instead of annually. This would result in
shorter customer service lines at the Division of Motor
Vehicles (DMV) by reducing the necessity for frequent public
contact.
Mr. Williams commented, to help offset the burden of having
to pay two years fees at once, the legislation would give
the public a small registration fee break. However, despite
the small fee break to the public, the State and those
municipalities which have a motor vehicle registration would
receive additional one time revenues in the year of
implementation due to the accelerated collections.
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Mr. Williams requested the Committee's consideration of a
technical amendment #9-LS1352\K.2, Ford, 3/22/96, Amendment
effective date section.
Mr. Williams added that Amendment #2, #9LS1452\K.3, Ford,
3/25/96, and Amendment #3, #9LS1452\K.7, Cook, 3/28/96, were
also recommended for adoption. [Copies on file].
Representative Parnell MOVED to adopt Amendment #1 which
would change the effective date to 1/01/97 for biennial
registrations. There being NO OBJECTION, it was adopted.
Co-Chair Hanley questioned the feasibility of implementing
the legislation by 7/01/96.
RON KING, CHIEF, AIR QUALITY IMPROVEMENT SECTION, DEPARTMENT
OF ENVIRONMENTAL CONSERVATION, testified in favor of a joint
implementation of the biennial vehicle inspection program
with a biennial vehicle registration program. He assessed
that the Department submitted a letter requesting that the
implementation date for the biennial inspection program be
changed from 7/01/96 to 1/01/97.
Mr. King noted that vehicle inspection and registration
programs are intricately linked, and it would be essential
to have an orderly transition period. He advised that he
has had problems with the modification of the software for
the test analyzers. The analyzer manufacturers have
indicated that they could not complete the software
modifications until 11/01/96.
Mr. King continued, if the amendment was adopted, the
Department would have to implement a manual system that
would be labor intensive and would require considerable
cooperation from the facilities performing the tests.
The second option and the one preferred by the Department
would be to delay the implementation of the biennial vehicle
inspection program until 1/01/97. Under that option,
computer software modifications would be completed. Mr.
King added that the Department would request that the two
programs be implemented simultaneously.
JUANITA HENSLEY, CHIEF, DRIVER SERVICES, DIVISION OF MOTOR
VEHICLES, DEPARTMENT OF PUBLIC SAFETY, stated that the
legislation would need to be passed by 4/01/96 in order for
the Department to be able to implement it by 7/01/96.
Renewal registration forms are mailed out four months in
advance and people need to know the duration of their
registration and how much it will cost them.
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Co-Chair Hanley agreed that both concerns should be
implemented at the same time. Mr. King pointed out that the
statutory starting time had been based on SB 28. SB 226
would change the initial date. Co-Chair Hanley encouraged
passage of the amendment in which both would begin 1/01/97.
Mr. Williams stated that the motion would not require a
title change resolution, although, would require a 2/3
effective date vote change.
Mr. King responded to Representative Brown's question,
stating that the Department would do the best they could in
implementing the program without the requested $50 thousand
dollar allocation, while reminding the Committee that this
would be a fiscally "tight" budget year. Mr. King explained
that the $50 thousand dollar note would be an on-going fee
as authorized in SB 28 language. Amendment #2 was
WITHDRAWN.
Representative Mulder MOVED to adopt Amendment #3. [Copy on
file]. There being NO OBJECTION, it was adopted.
Representative Mulder MOVED to WITHDRAW Amendment #4. [Copy
on file]. There being NO OBJECTION, it was WITHDRAWN.
Representative Mulder spoke to Amendment #5, #9-LS1452\K.4,
Ford, 3/28/96. [Copy on file]. He noted that the amendment
had been requested by the Municipality of Anchorage and that
it would allow that the inspection program not be related to
the air quality program. Mr. Williams indicated that
Senator Frank was opposed to Amendment #5.
Representative Mulder spoke to Amendment #6, #9-LS1452\K.8,
Ford, 3/29/96. [Copy on file]. He stated that Amendment #6
had been provided by car rental agencies in Anchorage to
address a matter of equity in the registration costs.
Co-Chair Hanley requested that a written response to the
amendments be provided by the Department of Public Safety,
the Department of Environmental Conservation and the
sponsor, Senator Frank.
CS SB 226 (FIN) am was HELD in Committee for further
consideration.
ADJOURNMENT
The meeting adjourned at 3:50 P.M.
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