Legislature(2003 - 2004)
04/15/2003 01:40 PM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 15, 2003
1:40 PM
TAPE HFC 03 - 58, Side A
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 1:40 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
None
ALSO PRESENT
Dan Fauske, Executive Director, Alaska Housing Finance
Corporation, Department of Revenue; Bryan Butcher,
Legislative Liaison, Alaska Housing Finance Corporation; Joe
Doubler, Chief Financial Officer/Finance Director, Alaska
Housing Finance Corporation; Ron Miller, Executive Director,
Alaska Industrial Development and Export Authority; Mike
Berry, Chairman, Alaska Industrial Development and Export
Authority, (AIDEA) Board.
PRESENT VIA TELECONFERENCE
None
SUMMARY
HB 203 "An Act relating to the definitions of 'net
income' and 'unrestricted net income' for purposes
of calculating the dividends to be paid to the
state by the Alaska Industrial Development and
Export Authority; and providing for an effective
date."
HB 203 was HEARD and HELD in Committee for further
consideration.
HB 256 "An Act relating to a dividend payment to the
state made by the Alaska Housing Finance
Corporation each fiscal year; and providing for an
effective date."
HB 256 was REPORTED out of Committee with a "do
pass" recommendation and one new zero fiscal note
by the Department of Revenue.
HOUSE BILL NO. 256
"An Act relating to a dividend payment to the state
made by the Alaska Housing Finance Corporation each
fiscal year; and providing for an effective date."
DAN FAUSKE, EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE
CORPORATION (AHFC), DEPARTMENT OF REVENUE testified in
support of the legislation and provided information on the
bill's history. He explained that AHFC entered into a
transfer plan agreement with the state of Alaska in 1995/6.
The agreement specified an annual transfer of $103 million
or an amount not exceeding prior year net income. He went
on to explain that over recent years, AHFC had begun selling
bonds on behalf of the state to support debt service
payments. He noted that of the $103 to be paid to the
State, $50 million was used to service debt on outstanding
bonds, and $53 million went to support AHFC's capital
budget.
Mr. Fauske noted that in recent years corporate income had
declined due to [low] interest rates and the market economy.
He observed that loan activity was strong, but pointed out
that interest earnings had decreased by nearly four
percentage points. He explained that when the transfer plan
was devised, it was based on a six percent return, whereas
currently the return was 1.5 percent.
Mr. Fauske highlighted that more and more Alaskans were now
becoming homeowners since interest rates were so low. He
recognized that the corporation needed to take into account
declining interest rates in respect to the amount paid by
AHFC to the State. He noted that the board had submitted
$75.6 million as its dividend in FY 03, since that
represented its net income and was prescribed by the
transfer plan. He also noted that negotiations were
underway to arrive at a plan to bring the dividend up to the
level expected by the State.
Mr. Fauske stated that the purpose of the bill was to bring
the AHFC dividend in line with government needs without
affecting bond ratings. He explained that the legislation
proposed an increased payment of 95% of net income, followed
by a gradual decline in payment levels until FY 08. He
noted that the plan had been discussed favorably with
investment bankers. He pointed out that the rating agencies
must be comfortable with arrangements in order for banks to
invest in Alaska bonds. He added that the majority of bonds
would be paid off on June 1 of 2006, making the corporation
debt free in the next two fiscal years. He concluded that
the bill would improve Alaska's bond ratings and strengthen
the economy.
Co-Chair Harris asked whether the dividend guarantee
proposed by the bill would in any way threaten the solvency
of the corporation.
Mr. Fauske clarified that the corporation would continue to
approach the legislature with its appropriation needs. He
noted that AHFC's capital projects were greatly assisted by
last year's legislative decision to allow AHFC to sell bonds
to gain capital. He confirmed that AHFC would remain
financially sound as long as the legislature continued to
consider the corporation's business needs on an annual
basis.
Representative Foster MOVED to report HB 256 out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION it was
so ordered.
HB 256 was REPORTED out of Committee with a "do pass"
recommendation and one new zero fiscal note by the
Department of Revenue.
HOUSE BILL NO. 203
"An Act relating to the definitions of 'net income' and
'unrestricted net income' for purposes of calculating
the dividends to be paid to the state by the Alaska
Industrial Development and Export Authority; and
providing for an effective date."
REPRESENTATIVE HAWKER, SPONSOR, testified in support of the
bill. He explained that the bill regarded the formula by
which the Alaska Industrial Development and Export Authority
(AIDEA) determined its dividend to the state of Alaska. He
noted that current statutes directed that 25 to 50 percent
of Authority's net income be paid as a dividend to the
State, not to exceed its unrestricted net income. He stated
that the language defining "net income" was later modified
to agree with the agency's accounting standards and annual
report language. He noted that the legislature subsequently
defined the income subject to distribution to exclude
intergovernmental transfers, capital contributions and
grants. He pointed out that the State did not wish to
change these exclusions.
Representative Hawker observed that assets invested in by
AIDEA had become impaired in the current fiscal year. He
acknowledged that there is a loss of value when something
happens to an asset owned by AIDEA that causes its value to
decline or become impaired, but emphasized that the
operating net income for the year is not affected. He
maintained that impaired assets do not affect the
Authority's current net income. Impairments are currently
taken into consideration in calculations of net income for
AIDEA dividend distributions. In the current year, values of
certain assets were written down as impairment loss, which
resulted in a negative net income and no dividend to the
state of Alaska.
Representative Hawker stated that the proposed bill would
change this practice, and no longer account for failed
assets when calculating the dividend since these non-
performing properties do not result in a net loss to the
agency. He observed that, had the State not factored two
impaired assets into AIDEA's net income for the past fiscal
year, the State would have received between $9 and $18
million in a dividend payment. He emphasized the benefit of
clarifying the dividend policy and stated that there is no
reason not to have a general fund contribution by AIDEA when
unusual write-downs occur, which do not have an otherwise
detrimental affect on the cash flow.
Representative Hawker noted that at the end of fiscal year,
AIDEA showed $789 million in unrestricted net assets. He
maintained that the new procedure would not result in a loss
to the agency, and would enable the State to budget for a
consistent dividend payment.
In response to a question by Co-Chair Harris, Representative
Hawker stated that the Labor and Commerce Committee did not
amend the bill. Co-Chair Harris asked for clarification
about the net effect of the bill.
Representative Hawker clarified that the bill would further
define "net income" and "unrestricted net income" for the
purpose of calculating the dividend.
Co-Chair Harris expressed his strong support of the bill.
MIKE BARRY, CHAIRMAN, ALASKA INDUSTRIAL DEVELOPMENT AND
EXPORT AUTHORITY, (AIDEA) spoke in opposition to the
legislation. He explained that the basis for opposition was
the issue of consistency. He discussed the history of the
dividend policy and expressed the Board's full support of
the current policy. He noted the controversy within the
businesses community regarding the rules established for
calculating the dividend payment. He pointed out that this
was the first year in which AIDEA had not paid a dividend.
He stated the reason as being two large investments that had
suffered impairment.
Mr. Barry maintained that the Authority might be damaged by
the prospect that the legislature may at any time change the
rules established by the original statute. He noted that a
lack of consistency might negatively impact the impression
of the Authority by the business and bonding community.
HB 203 was HEARD and HELD in Committee for further
consideration.
Co-Chair Williams requested that members sign the
Confirmation Committee Report to forward Nelson Page
(Anchorage) for consideration as a member of the Board of
Trustees of the Mental Health Trust Authority.
ADJOURNMENT
The meeting was adjourned at 2:10 PM
| Document Name | Date/Time | Subjects |
|---|