Legislature(2005 - 2006)HOUSE FINANCE 519
02/02/2006 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB361 | |
| HB381 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 361 | TELECONFERENCED | |
| *+ | HB 381 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 2, 2006
1:53 p.m.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 1:53:05 PM.
MEMBERS PRESENT
Representative Kevin Meyer, Co-Chair
Representative Richard Foster
Representative Jim Holm
Representative Mike Kelly
Representative Beth Kerttula
Representative Bruce Weyhrauch
Representative Reggie Joule
MEMBERS ABSENT
Representative Mike Chenault, Co-Chair
Representative Carl Moses
Representative Bill Stoltze, Vice-Chair
Representative Mike Hawker
ALSO PRESENT
Dan Fauske, Executive Director, Alaska Housing Finance
Corporation, Department of Revenue; Bryan Butcher,
Legislative Liaison, Alaska Housing Finance Corporation; Joe
Dubler, Director, Finance, Alaska Housing Finance
Corporation; Devon Mitchell, Executive Director, Alaska
Municipal Bond Bank Authority, Department of Revenue; Cheryl
Frasca, Director, Division of Management & Budget, Office of
the Governor; Michael Barnhill, Assistant Attorney General,
Department of Law
PRESENT VIA TELECONFERENCE
None
SUMMARY
HB 361 "An Act relating to the dividend paid to the state
by the Alaska Housing Finance Corporation; and
providing for an effective date."
HB 361 was REPORTED out of Committee with a "no
recommendation" recommendation and with a new
fiscal note by the Department of Revenue.
HB 381 "An Act relating to the financing of construction,
major maintenance, and renovation of facilities
for the University of Alaska; relating to the
financing of construction of a correctional
facility; authorizing the commissioner of revenue
to sell the right to receive a portion of the
anticipated revenue from a tobacco litigation
settlement to the Northern Tobacco Securitization
Corporation, with the proceeds of that sale to
finance construction, major maintenance, and
renovation of facilities for the University of
Alaska and to finance the construction of a
correctional facility; providing for the
establishment of funds for deposit of those
proceeds; authorizing the issuance of bonds by the
Northern Tobacco Securitization Corporation for
the purpose of acquiring the right to receive a
portion of anticipated revenue from a tobacco
litigation settlement; and providing for an
effective date."
HB 381 was heard and HELD in Committee for further
consideration.
1:53:17 PM
HOUSE BILL NO. 361
"An Act relating to the dividend paid to the state by
the Alaska Housing Finance Corporation; and providing
for an effective date."
Representative Foster MOVED to ADOPT the proposed Committee
Substitute (CS) for HB 361, labeled 24-GH2058\G, Cook,
2/1/06. There being NO OBJECTION, it was so ordered.
DAN FAUSKE, EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE
CORPORATION, DEPARTMENT OF REVENUE, related that CSHB 361
would amend the agreement between the Alaska Housing Finance
Corporation (AHFC) and the state, calling for the transfer
of AHFC's net income to the state general fund in the form
of an annual dividend that funds debt service for certain
bonds and capital projects.
JOE DUBLER, DIRECTOR, FINANCE, ALASKA HOUSING FINANCE
CORPORATION, explained that the bill is an adjustment to the
current transfer plan that AHFC has in place in statute
18.56.089(c), which references net income and how it is paid
to the state. The Governmental Accounting Standards Board
(GASB) has adopted statement number 34, which changed the
financial statement presentation of the net income of
governmental entities to "change in net assets". The term
net income no longer exists on AHFC's financial statements.
FY 07 is when the first payment will be made based on net
income; prior years were all a static $103 million. The
bill would conform the statute to current Generally Accepted
Accounting Principles (GAAP).
Mr. Dubler explained that another change involves what used
to be the Balance Sheet, now called the Statement of Net
Assets. Pre-GASB 34, accounting by AHFC involved multiple
equity accounts including contributed capital and retained
earnings. Contributed capital represented the original
investment by the state in AHFC, and retained earnings was
accumulated profits. In determining the transfer prior to
GASB 34, net income was the baseline. Using the change in
net assets line item from the current financial presentation
incorporates items that, before GASB 34, were not included
in net income. Such items were direct cash transfers to the
state that were presented as direct reductions in
contributed capital, as they did not represent operating
activity of AHFC. GASB 34 does not allow that accounting
treatment for those items and requires that they flow
through the Statement of Net Assets as Expenses of one form
or another. The bill modifies the transfer plan statute to
use an "Adjusted Change in Net Assets" as the baseline for
the transfer, which incorporates all of the expenses that
were under pre-GASB 34 rules included in net income and
excludes those expenditures that were not. Without the
passage of HB 361, the dividend paid to the state by AHFC
will be $38.1 million. With the legislation, the dividend
will be $80.6 million.
1:58:41 PM
Mr. Dubler referred to Section 1, line 9, the addition of
the words "or other capital projects". He maintained that
the language is too restrictive without that wording. Mr.
Fauske added that the bill is needed in order to justify
sending over $80 million to the state and it is an advantage
to AHFC on Wall Street. The bill also helps conform to the
intent of the original legislation passed two years ago.
Co-Chair Meyer noted the new fiscal note and a change in
revenue of $42,500,000.
2:01:35 PM
Representative Joule questioned the creation of new
subsidiaries in the CS.
Mr. Fauske responded that the language in the new CS is the
same as in the original bill. He explained that the
rationale behind adding the wording "or other capital
projects" would give the legislature more room to expand use
of proceeds such as the tobacco bond bill.
Co-Chair Meyer repeated that the CS is just expanding what
is already in statute. Mr. Fauske further explained how the
bill would expand the dividend paid to the state by AHFC.
2:05:15 PM
Representative Kerttula asked what would happen to the money
if this change were not made. Mr. Fauske replied that the
money would stay within the corporation. Representative
Kerttula questioned how AHFC would use the money. Mr.
Fauske related that even though business is vibrant, the
market is changing and the bottom line is changing. This
bill represents an attempt to pay a percent of net income.
The money could be used for many things, but affordability
is always an issue. Representative Kerttula agreed that the
program should not be under-funded.
2:09:08 PM
BRYAN BUTCHER, LEGISLATIVE LIAISON, ALASKA HOUSING FINANCE
CORPORATION, pointed out that this legislation is in line
with the original intent of the bill.
2:09:53 PM
At-ease.
2:11:41 PM
Representative Foster MOVED to report CSHB 361 out of
committee with individual recommendations and with the
accompanying fiscal note dated 2/1/06. There being NO
OBJECTION, it was so ordered.
HB 361 was REPORTED out of Committee with a "no
recommendation" recommendation and with a new fiscal note by
the Department of Revenue.
2:12:59 PM
HOUSE BILL NO. 381
"An Act relating to the financing of construction,
major maintenance, and renovation of facilities for the
University of Alaska; relating to the financing of
construction of a correctional facility; authorizing
the commissioner of revenue to sell the right to
receive a portion of the anticipated revenue from a
tobacco litigation settlement to the Northern Tobacco
Securitization Corporation, with the proceeds of that
sale to finance construction, major maintenance, and
renovation of facilities for the University of Alaska
and to finance the construction of a correctional
facility; providing for the establishment of funds for
deposit of those proceeds; authorizing the issuance of
bonds by the Northern Tobacco Securitization
Corporation for the purpose of acquiring the right to
receive a portion of anticipated revenue from a tobacco
litigation settlement; and providing for an effective
date."
MS. CHERYL FRASCA, DIRECTOR, DIVISION OF MANAGEMENT &
BUDGET, OFFICE OF THE GOVERNOR, spoke of the need for HB
381. She referenced a handout "Tobacco Bond Refinancing
Fact Sheet" (copy on file), which provides information on
previous tobacco bond bills. She explained that this fall
the Department of Revenue approached the governor's office
about an opportunity to refinance tobacco bonds. The amount
of revenue that could be generated would be between $80 and
$140 million. The current proposal would authorize using at
least $89.3 million of the proceeds to be spent on
University of Alaska projects. She pointed to the projects
on page 2 of the bill. These same projects are also listed
in the FY 07 capital budget. Any proceeds greater than
$89.3 will be available for construction of the Mat-Su jail.
Co-Chair Meyer asked if the bill has an impact on the 20
percent that goes toward the tobacco cessation program. Ms.
Frasca replied that it does not. Representative Weyhrauch
asked why that is so.
2:17:26 PM
DEVON MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, noted that HB 381 is
taking advantage of a current market opportunity that has
not been available for several years. It is a further
leveraging of the 80 percent of the Master Settlement
Agreement (MSA) that was already sold to the Northern
Tobacco Securitization Corporation. It is selling an
additional portion of that settlement to raise further
capital for projects in the state. It does not impact the
20 percent that is currently used for other programs, but is
a future obligation.
Mr. Mitchell shared previous history of the tobacco bonds.
In 2000-1 the first tobacco bonds were issued. Payments
from participants in the MSA are now being sold. The money
is coming from a separate credit from the State of Alaska.
He noted a previous discussion of market saturation with
this type of debt. In 2001 tobacco transactions required
that the makers put in additional credit support forward,
such as a moral obligation pledge. Since then, there has
been favorable legislation that has allowed stand alone
tobacco transactions to occur, plus more aggressive
securitization of the revenue stream further into the
future. Now the state can take advantage of an opportunity,
which is market driven and fluid. He explained the
flexibility built into the bill.
2:22:35 PM
Co-Chair Meyer asked if the tobacco bonds are secure to
investors. Mr. Mitchell anticipated that ratings would vary
and that there would be some risk. The MSA, itself, has a
lot of risk. There is a cost for passing that risk, but it
is reasonable.
Co-Chair Meyer asked about the range of proceeds. Ms.
Frasca indicated that the range is between $80 million to
$140 million, as determined in late November, but the
numbers could change. Co-Chair Meyer inquired if the money
could be used for other projects. Ms. Frasca replied that
it could be used for other capital projects.
Representative Joule spoke about the growth of the
university and the need to maintain it. He talked about the
need to also fund rural projects in addition to this prison
and this university. He mentioned the need for money for
new school construction. He hoped that there could be
consensus on funding for all needs.
Co-Chair Meyer asked when the bonds would be marketable.
Mr. Mitchell replied that depends on the date the bill is
passed. Co-Chair Meyer asked about the impact on the bonds
of future court decisions.
MICHAEL BARNHILL, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, spoke of litigation in Illinois regarding cigarette
liability. A $10 billion award was made against Philip
Morris, which was recently overturned by the Illinois
Supreme Court. That created a better climate for tobacco
bonds.
2:30:51 PM
Representative Weyhrauch noted that a large amount of money
was saved by not selling these bonds last fall. Mr.
Mitchell replied that their value increased after December
15, the date of the Illinois court ruling. There are also
several other cases pending. Mr. Barnhill concluded that it
is hard to say how much money has been saved. He related a
court decision from Oregon with a smaller judgment in favor
of a tobacco company. Representative Weyhrauch asked what
the increased value of the bond is today.
Ms. Frasca reported that the estimate went from $140 million
at the top, to $180 million, with the potential of being
$194 million. Representative Weyhrauch commented that it
argues for some prudence on taking action on the bill.
Co-Chair Meyer inquired about the length of the MSA
agreement. Mr. Barnhill restated that the MSA provides for
an indefinite stream of payments. Representative Joule
asked why and how. Mr. Barnhill said that's the way it is.
Co-Chair Meyer asked if the proposal is until the year 2040.
Mr. Mitchell replied yes.
Mr. Fauske clarified that the bonds are a windfall to the
state, not a legal or moral obligation. Through an AHFC
subsidiary, the Northern Tobacco Securitization Corporation,
the bonds are issued at a premium to private investors who
assume all of the risks. It is a moving target, but in a
friendlier environment because of recent lawsuits. The risk
to the state is minimal. AHFC buys the cash flows from the
state. The state, through the Commissioner of Revenue,
releases to Northern Tobacco the right, with legislative
approval, to accept those revenues. The first issuance of
bonds was $300 million, which went to schools.
2:36:09 PM
Representative Kelly questioned if the design and
construction of all projects still go through the
legislature. Mr. Mitchell said yes.
Representative Kerttula requested information about the
financing of the Mat-Su prison.
2:37:24 PM
Ms. Frasca responded that several options are being
considered. Representative Kerttula inquired if naming one
prison project in the bill may impact other prison projects.
Ms. Frasca related that SB 65 did provide for a mechanism to
enter into a lease purchase agreement with the state for
jail construction to proceed. She maintained that how the
Mat-Su prison fits into the whole picture is a separate
subject for discussion. It is an appropriation that will
come before the legislature again.
Co-Chair Meyer recalled that SB 65 also included private
prisons, which are not currently under consideration.
Representative Kerttula asked for a cost estimate for the
Mat-Su prison. Ms. Frasca responded that there are several
approaches that are being considered, such as the design
built finance option. Co-Chair Meyer recalled that is how
the Anchorage jail was built.
2:40:27 PM
Representative Joule referred to the title of the bill,
which is very specific. He inquired if projects not named
would be precluded. Mr. Barnhill asked Representative Joule
if the question is, if the legislature wants to use the
funds for other purposes, can it.
Mr. Mitchell observed that an amendment would be required to
change the title. Representative Joule inquired how school
construction could be included in this bill. Mr. Mitchell
reported that a change in the use of the proceeds would
cause problems because when bonds are issued the projects
have to be defined. Now would be the time to make such a
change.
Representative Kelly observed that he wants to think about
this issue. Ms. Frasca responded that the Mat-Su prison was
already authorized by the legislature, but as a different
mechanism. There will be further discussion about it. Co-
Chair Meyer noted that the title states, "finance the
construction of a correctional facility", which could be any
correctional facility in the state.
HB 381 was heard and HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 2:47 PM.
| Document Name | Date/Time | Subjects |
|---|