Legislature(1995 - 1996)

04/24/1995 01:45 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                     HOUSE FINANCE COMMITTEE                                   
                                April 24, 1995                                 
                            1:30 P.M.                                          
                                                                               
  TAPE HFC 95-96, Side 1, #000 - end.                                          
  TAPE HFC 95-96, Side 2, #000 - end.                                          
  TAPE HFC 95-97, Side 1, #000 - end.                                          
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair  Mark  Hanley called  the  House Finance  Committee                 
  meeting to order at 1:45 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                                                                 
                                                                               
  Bonnie Smith, People Count, Soldotna; Jennifer Deitz, Travel                 
  Academy, Anchorage; Marie  Becker, Fairbanks; Tom  Williams,                 
  Staff,  Senator Frank;  John  Bitney, Staff,  Representative                 
  Martin;  Cynthia  Parker,   Executive  Director,   Anchorage                 
  Neighborhood Housing Projects; Jan,  Sieberts, National Bank                 
  of Alaska; Joe McCormick, Executive Director,  Postsecondary                 
  Education Commission, Department of Education; Wendy Redman,                 
  Vice President, University of Alaska.                                        
                                                                               
  SUMMARY                                                                      
  HB 78     An  Act   relating  to   the  maximum   amount  of                 
            assistance  that may  be  granted under  the adult                 
            public assistance  program and the program  of aid                 
            to families  with dependent children;  proposing a                 
            special demonstration project  within the  program                 
            of  aid to  families with  dependent  children and                 
            directing the  Department  of  Health  and  Social                 
            Services   to  seek   waivers  from   the  federal                 
            government to implement the project.                               
                                                                               
            HB 78 was rescheduled.                                             
  HB 257    An  Act   relating  to   student  loan   programs,                 
            interstate compacts  for postsecondary  education,                 
            and  fees  for review  of  postsecondary education                 
                                                                               
                                1                                              
                                                                               
                                                                               
            institutions; and providing for an effective date.                 
                                                                               
            CSHB 257 (FIN) was reported  out of Committee with                 
            a  "do  pass"  recommendation  and  with  two zero                 
            fiscal notes  by the Department of  Education, one                 
            dated 3/22/95.                                                     
                                                                               
  SB 92     An  Act  requiring  that,   in  addition  to   its                 
            operating  budget, all  activities  of the  Alaska                 
            Housing  Finance  Corporation are  subject  to the                 
            Executive Budget Act.                                              
                                                                               
            SB 92 was assigned to a subcommittee consisting of                 
            Representative Martin as Chair and Representatives                 
            Kohring and Navarre.                                               
  SENATE BILL NO. 92                                                           
                                                                               
       "An Act requiring  that, in  addition to its  operating                 
       budget,  all activities  of the Alaska  Housing Finance                 
       Corporation are subject to the Executive Budget Act."                   
                                                                               
  JOHN  BITNEY,  STAFF,  REPRESENTATIVE  MARTIN  testified  on                 
  behalf of  HB 92.   He  explained that  the legislation  was                 
  sponsored at the unanimous request of the Legislative Budget                 
  and  Audit  Committee.   He  explained that  the legislation                 
  attempts to bring  all the activities of the  Alaska Housing                 
  Finance Corporation (AHFC)  under the  review procedures  of                 
  the Executive  Budget Act.   He observed that  the Committee                 
  was concerned that  the Corporation had undertaken  a fairly                 
  substantial program with the use of arbitrage funds.   Loans                 
  were made with arbitrage funds at a 5 percent interest rate.                 
  He noted that the legislation was amended in the House State                 
  Affairs Committee.  The State Affairs Committee placed three                 
  items  in the bill on  page 2, lines  8 - 16,  that would be                 
  exempted  from  the review  procedures.   He  explained that                 
  financing through the sale of  bonds, multi-family loans and                 
  projects  not to  exceed 10  million dollars,  and any  loan                 
  program for which a subsidy is  not required would be exempt                 
  from review  procedures under the Executive Budget  Act.  He                 
  stressed that the intent is to craft language to be added to                 
  what is provided for the Corporation in the front section of                 
  the  operating  budget.   He  explained that  AHFC functions                 
  approved in  the front section  of the budget  receive open-                 
  ended authorization.   He  stressed that  the front  section                 
  language would  be expanded  to give  the Corporation  open-                 
  ended authority  for the  programs which  are being  brought                 
  under the review procedures of the legislature.                              
                                                                               
  In  response  to  a question  by  Representative  Brown, Mr.                 
  Bitney explained that the legislation varies from the status                 
  quo by listing the three exemptions  that are not covered by                 
                                                                               
                                2                                              
                                                                               
                                                                               
  the Executive  Budget Act  instead of  listing the  specific                 
  areas  in  which the  review  of  the Executive  Budget  Act                 
  applies.  He noted  that loan programs and use  of arbitrage                 
  funds  to  set  up  programs   and  bonding  authority  were                 
  previously  exempted.   The  legislation  would require  the                 
  Corporation to  seek  approval  for  grants,  any  arbitrage                 
  program and any  subsidized project or program  that exceeds                 
  10 million dollars.                                                          
                                                                               
  TOM WILLIAMS, STAFF,  SENATOR FRANK asserted that  the House                 
  State Affairs Committee Substitute for SB 92 may make Alaska                 
  Housing Finance  Corporation less  subject to  the Executive                 
  Budget Act than it is under current statute.  He referred to                 
  section (B), page  2, line 12 regarding  multi-family loans.                 
  He stated that Senator Frank  would prefer that the previous                 
  version be adopted.                                                          
                                                                               
  CYNTHIA PARKER, EXECUTIVE  DIRECTOR, ANCHORAGE  NEIGHBORHOOD                 
  HOUSING SERVICES testified  in support of HCS CSSB 92 (STA).                 
  She expressed concern that if  all of AHFC's activities were                 
  brought under the Executive Budget  Act that AHFC could  not                 
  take   advantage   of   quick   changing  financial   market                 
  activities.   She discussed  the bond  issuance capacity  of                 
  AHFC.  She referred  to (B) on page 2,  line 12.  She  noted                 
  that most  multi-family housing projects  in Alaska  involve                 
  subsidy layering from the federal  government.  She stressed                 
  that the complexity of the projects could require up to five                 
  different funding sources to make a project work.                            
                                                                               
  JAN SIEBERTS, NATIONAL  BANK OF  ALASKA (NBA) stressed  that                 
  NBA  has  been a  good  partner in  supplying  financing for                 
  housing in the State.  He  testified in support of HCS  CSSB                 
  92  (STA).    He  expressed   concern  that  AHFC  be  given                 
  flexibility  to  accomplish  complex  financing  needed  for                 
  senior  and low  income  housing projects.    He reviewed  a                 
  senior citizen project  in Fairbanks.  He observed  that the                 
  project includes federal grants, the use of arbitrage funds,                 
  federal  tax credits,  and other  forms of  assistance.   He                 
  stressed  that  AIDEA  has  a   $10.0  million  dollar  loan                 
  authority.  He  suggested that  AHFC be also  given a  $10.0                 
  million dollar level of authority.                                           
                                                                               
  In response  to a  question by  Representative Parnell,  Ms.                 
  Parker stated  that she  interpreted page  2, line  12 as  a                 
  $10.0 million dollar  cap on the project not  AHFC's portion                 
  of the financing.                                                            
                                                                               
  Representative Martin stated  that the  problem came to  the                 
  attention of the Legislative Budget and Audit Committee when                 
  the 5  percent arbitrage program was initiated.  He stressed                 
  that the Legislative  Budget and Audit Committee  is charged                 
  with the financial well  being of the State.   He emphasized                 
                                                                               
                                3                                              
                                                                               
                                                                               
  the  responsibility of  the  Legislative  Budget  and  Audit                 
  Committee to oversee the welfare of the State.                               
                                                                               
  Representative Kohring  stated that  the State  will not  be                 
  encumbered on the part  of the Legislation given the  strong                 
  financial status of AHFC.                                                    
                                                                               
  In response  to a  question by  Representative Kohring,  Ms.                 
  Parker noted that the addition of "programs" on page 2, line                 
  12 after "loans" would be advisable.  She explained that the                 
  intent during the drafting was that there be a $10.0 million                 
  dollar cap.   Legislative oversight  would remain under  the                 
  Executive Budget  Act.   She  suggested that  "multi-family"                 
  loans may  be too restricted.   She discussed  projects that                 
  would be affected by the insertion of "multi-family".                        
                                                                               
  Representative Kohring  questioned  if  language  should  be                 
  inserted to clarify that the $10.0 million dollar cap refers                 
  to AFHC's participation  as opposed  to the entire  project.                 
  Ms.   Parker   stated  that   the   language  suggested   by                 
  Representative  Kohring  would  be consistent  with  AIDEA's                 
  authority.                                                                   
                                                                               
  In  response  to a  question  by Representative  Mulder, Ms.                 
  Parker stated that $10.0  million dollars would equate  to a                 
  82 unit building.  She noted that "multi-family" units would                 
  primarily be  low  income  or  special  needs  units.    She                 
  explained  that  tax  credits  are  sometimes  allocated  to                 
  projects to reduce debt.                                                     
                                                                               
  Representative Parnell  questioned the  intent by  the House                 
  State Affairs Committee in providing  a $10.0 million dollar                 
  cap.  He asked how often  AHFC reaches $10.0 million dollars                 
  in contribution for  low income  projects.   She noted  that                 
  other funding sources are usually involved.  She  noted that                 
  AHFC contributed  $4.5 million  dollars of  a $11.0  million                 
  dollar multi-family project in Anchorage.  She stressed that                 
  some  Anchorage  projects  under AHFC's  for  profit  equity                 
  extraction  and refinancing  could  require a  $10.0 million                 
  dollar involvement by AHFC.  She conceded that $10.0 million                 
  dollars is a upper limit that is would be reached for multi-                 
  family loans and programs.                                                   
                                                                               
  Representative Martin  emphasized the  importance of  AHFC's                 
  influence.  He stressed the need for legislative oversight.                  
                                                                               
  Mr.  Sieberts asserted  that  the legislation  substantially                 
  brings  AHFC under  control of abuses  previously discussed.                 
  He  emphasized  that the  legislation  is a  compromise that                 
  allows AHFC to continue to  do business without jeopardizing                 
  projects.   He asserted that  government is involved  in all                 
  housing loans.                                                               
                                                                               
                                4                                              
                                                                               
                                                                               
  Representative Therriault  pointed out  that AIDEA  provides                 
  funding  for larger projects  such as  port facilities.   He                 
  expressed  concern with  allowing  the $10.0  million dollar                 
  contribution  to refer  to only  AHFC's portion of  a multi-                 
  family project.                                                              
                                                                               
  Representative  Kohring  stressed  that  AHFC  steps  in  to                 
  provide loans when other governmental  housing loans are not                 
  available.   He stated that  the entire banking and mortgage                 
  lending industry  is concerned about  the restrictions  that                 
  the legislation poses.                                                       
                                                                               
  Representative  Navarre questioned  what  portion of  AHFC's                 
  activity  would  be available  through  other markets.   Ms.                 
  Parker stressed  that  changing interest  rates  and  market                 
  activities  effect  the  availability  of  secondary  market                 
  sources.      She  pointed   out   that  rural   areas  were                 
  disadvantaged  until the merger.   She stressed that AHFC is                 
  able to make rural loans at competitive rates.                               
                                                                               
  (Tape Change, HFC 95-96, Side 2)                                             
                                                                               
  Ms. Parker  emphasized that AHFC  is the primary  lender for                 
  multi-family loans.  She  noted that outside capital  may be                 
  available for some larger multi-family projects.                             
                                                                               
  Mr.  Siebert  added  that  NBA services  approximately  $2.1                 
  billion dollars in loans.   He noted that $900.0  million of                 
  these loans represent AHFC loans.   He stressed that AHFC is                 
  probably  the  only source  of money  in  rural Alaska.   He                 
  pointed out  that mortgage companies  take the top  third of                 
  the market.  He noted that conduit marketing representatives                 
  are not interested in the Alaska  market place.  He stressed                 
  that HUD projects can take up to a year  to arrange lending.                 
  He emphasized  that AHFC  has a rural  housing program  that                 
  works well for up to 12 units.                                               
                                                                               
  Representative  Navarre  asked  how  much  of  AHFC's  rural                 
  lending could be displaced with other sources.  He  asserted                 
  that  the  State  has  driven  up  the  housing  economy  by                 
  providing financing to  the lower two-thirds of  the market.                 
  He suggested that the financial security of AHFC could be at                 
  risk with another  down turn  in the economy.   He  stressed                 
  that  most of the  risk falls on  AHFC.  He  stated that the                 
  government absorbs most of the loses.                                        
                                                                               
  Ms. Parker stated that the distortion in the market occurred                 
  as a result of single family  loans when interest rates were                 
  high.   She stressed  that the  issue is  AHFC's ability  to                 
  access normal  capital markets  in a  market driven  economy                 
  without subsidy.   She stated that  there is not  as high  a                 
                                                                               
                                5                                              
                                                                               
                                                                               
  foreclosure risk in rural Alaska since there is no where for                 
  residents to go.                                                             
                                                                               
  Mr. Siebert stressed that the rural portfolio has the lowest                 
  default and delinquency rates.   He asserted that the  rural                 
  portfolio  carried  the  rest  of  Alaska  during  the  last                 
  recession.  He maintained that the  reason that the National                 
  Bank  of  Alaska  survived  the  recession was  because  the                 
  nucleus of its power was in  Southeast Alaska.  He estimated                 
  that it would be  difficult to displace rural AHFC  loans to                 
  other sources.   He stressed  that AHFC's mortgage  standing                 
  has aged and  is in a  better position to withstand  another                 
  downturn.                                                                    
                                                                               
  Representative Brown clarified that  the Alaska Railroad  is                 
  not under  the Executive  Budget Act.   She  noted that  the                 
  merger is three  years old.   She noted that she  introduced                 
  the original legislation to make the merger.  She emphasized                 
  that the level  of oversight was  discussed in detail.   She                 
  stressed  that  there  is  still  a shortage  of  affordable                 
  housing.   She noted  that up to  25 percent of  the housing                 
  available is not energy efficient.   She spoke in support of                 
  HCS CSSB 92 (STA).                                                           
                                                                               
  Co-Chair Hanley  noted that  SB 92  would be  assigned to  a                 
  subcommittee consisting  of Representative  Martin as  Chair                 
  and Representatives Kohring and Navarre.                                     
                                                                               
  Representative Martin questioned whether the rural portfolio                 
  is  carrying  the  rest  of  Alaska's  housing market.    He                 
  stressed that homes are over priced.                                         
                                                                               
  Mr. Siebert  clarified that  the delinquency  rates and  the                 
  portfolio served by the National Bank  of Alaska for AHFC in                 
  rural Alaska out performs urban centers.                                     
                                                                               
  SB  92  was   assigned  to  a  subcommittee   consisting  of                 
  Representative Martin  as Chair and  Representatives Kohring                 
  and Navarre.                                                                 
  HOUSE BILL NO. 257                                                           
                                                                               
       "An Act relating to  student loan programs,  interstate                 
       compacts for  postsecondary  education,  and  fees  for                 
       review  of  postsecondary  education institutions;  and                 
       providing for an effective date."                                       
                                                                               
  DR.  JOE L. MCCORMICK, EXECUTIVE DIRECTOR, ALASKA COMMISSION                 
  ON POSTSECONDARY EDUCATION  testified in support of  HB 257.                 
  He asserted that  the legislation  will achieve three  broad                 
  objectives:   It will  improve customer  service, strengthen                 
  the  financial  stability  and independence  of  the  Alaska                 
                                                                               
                                6                                              
                                                                               
                                                                               
  Student   Loan   Program   and   improve   overall   program                 
  administration.  Mr. McCormick elaborated on the objectives:                 
                                                                               
  *    FIRST OBJECTIVE: IMPROVE CUSTOMER SERVICE                               
                                                                               
            Section  1:   Section 1(1) raises  graduate limits                 
            from $6,500 to  $9,500 thousand dollars.   Section                 
            1(2) raises undergraduate loan limits from  $5,500                 
            to  $8,500 thousand dollars.   Section  1(3) would                 
            allow  $5,500  thousand  dollars  for a  full-time                 
            student attending  a career  education program  of                 
            nine months  or more.   Section  1(4) would  allow                 
            $3,000 thousand dollars  for a full-time  and $1.0                 
            thousand dollars for a half-time student attending                 
            a  career education  program  of  less  than  nine                 
            months.                                                            
                                                                               
  Mr. McCormick noted that tuition at the University of Alaska                 
  has increased 250 percent  since 1984.  He pointed  out that                 
  loan limits have not been raised since 1981.                                 
                                                                               
            Section 3: Increases consumer protection by giving                 
            the Alaska Commission  on Postsecondary  Education                 
            the   ability   to   insure  the   financial   and                 
            administrative capability of schools  using Alaska                 
            Student Loan Program funds.   In addition, section                 
            3  requires that Alaska Student Loan Program funds                 
            be  used  only  for   attending  career  education                 
            programs that  are operating  on a fiscally  sound                 
            basis, have been in operation for two years before                 
            the borrower attends,  have submitted an  executed                 
            program participation agreement; or  for attending                 
            colleges  or universities  that have  operated for                 
            two years prior to the borrowers attendance and is                 
            accredited by a national or regional accreditation                 
            association.                                                       
                                                                               
            Section 4:   Provides greater flexibility  to both                 
            the  borrower and  the  Commission by  setting the                 
            maximum amount that  can be  borrowed at a  dollar                 
            amount rather than on number of loan years.                        
                                                                               
            Section  6:     Amends  the  terms  of  repayment.                 
            Extends  the  period of  repayment  from 10  to 15                 
            years.   Decreases the  grace period from  12 to 6                 
            months.  Sets  the monthly payment minimum  at $50                 
            dollars a month.                                                   
                                                                               
            Section 12: Extends the period  before a loan goes                 
            into default from 120 to 180 days.  This gives the                 
            borrower more of an opportunity to  resolve short-                 
            term financial difficulties  and avoid going  into                 
                                                                               
                                7                                              
                                                                               
                                                                               
            default.                                                           
                                                                               
            Sections 16, 21, 27:   These sections allow family                 
            members to borrow  on behalf of  a student at  the                 
            same time  a student  borrows on  his own  behalf.                 
            This  is  meant  to address  the  rising  costs of                 
            education.  The  combined loans cannot exceed  the                 
            cost of attendance.                                                
                                                                               
  Mr.  McCormick  observed  that  the  Family  Education  Loan                 
  Program (FEL) differs  from the Alaska Student  Loan Program                 
  in that the borrower must begin  repayment after the loan is                 
  disbursed.  He maintained that the  rate of default on these                 
  loans is almost nonexistent.  Loan maximums are the same for                 
  both the FEL and Alaska Student Loan programs.                               
                                                                               
            Section 26:   Allows  the Commission  to establish                 
            fees  for the  review  of institutions  requesting                 
            approval for participation  in the Alaska  Student                 
            Loan Program.                                                      
                                                                               
  *    SECOND OBJECTIVE: INCREASE  THE FINANCIAL VIABILITY  OF                 
       THE ALASKA STUDENT LOAN PROGRAM                                         
                                                                               
            Section  5:  Eliminates   interest-free  deferment                 
            periods.   By eliminating the interest  free grace                 
            period.   The cost  to a  student with  a loan  of                 
            $5,000  thousand  dollars at  8% interest  will be                 
            approximately $450 hundred dollars.  This could be                 
            paid off during  the deferment period or  added to                 
            the loan principle.                                                
                                                                               
            Section  14:    Allows the  Alaska  Commission  on                 
            Postsecondary Education to set origination fees by                 
            regulation.  The  origination fee is currently  at                 
            one  percent.    Under this  legislation,  the fee                 
            could  not  exceed five  percent.   This  fee will                 
            cover  loan  losses  due  to  death,   disability,                 
            default, and bankruptcy.                                           
                                                                               
            Section  18:    Gives  delinquent  student   loans                 
            priority,  behind  child support  enforcement, for                 
            wage garnishment.                                                  
                                                                               
  *    THIRD    OBJECTIVE:        IMPROVE   OVERALL    PROGRAM                 
       ADMINISTRATION                                                          
                                                                               
            Sections 8, 15,  20, 24, and 27  contain technical                 
            changes  which  decrease administrative  costs and                 
            reduce duplication such as:  Elimination of costly                 
            and unnecessary mailings  to borrowers;  requiring                 
            illegally obtained  loans be  paid on  demand; and                 
                                                                               
                                8                                              
                                                                               
                                                                               
            removing arbitrary caps on loan volume.                            
                                                                               
  Mr. McCormick concluded that the goal  is to ensure that the                 
  Alaska Student Loan  Program is  financially viable so  that                 
  future  generations  of Alaskans  can  be assured  access to                 
  postsecondary education  opportunities.  He  maintained that                 
  passage  of  this  legislation will  go  a  long way  toward                 
  achieving this important objective.                                          
                                                                               
  In response to  a question by Co-Chair Hanley, Mr. McCormick                 
  stated  that  the Commission  could  not issue  bonds within                 
  three  years  if   the  loan  servicing  problems   are  not                 
  addressed.  The  Commission issues  between $40.0 and  $50.0                 
  million dollars a year in bonds.                                             
                                                                               
  Representative Brown questioned  if the  Fund would be  self                 
  sustaining with the passage of HB 257.  Mr. McCormick stated                 
  that the legislation  alone would not make the  program 100%                 
  whole.  He  noted that students  do not pay interest  on the                 
  loans while they are attending school.  He stated that until                 
  interest is charged on the period students are in school the                 
  program will not be financially sound.                                       
                                                                               
  Representative Brown asked the effect  of the legislation on                 
  the typical borrower.   Mr. McCormick noted that 70%  of the                 
  loans  pertain  to  students at  the  University  of Alaska.                 
  Those students  would have  an undergraduate  loan limit  of                 
  $8.5 thousand dollars  and a graduate limit of $9.5 thousand                 
  dollars.  The  current loan limit is  $5.5 thousand dollars.                 
  He estimated a  10 to  20 percent increase  in loan  volume.                 
  The  bond  issue would  have to  be  increased to  cover the                 
  demand.                                                                      
                                                                               
  Representative Brown noted concern regarding page 2, item 4,                 
  line  3 regarding the limit on  career education programs to                 
  $3.0  thousand  dollars  for  a  full  time  student.    Mr.                 
  McCormick stressed that  the $3.0 thousand dollar  limit was                 
  the result of staff recommendations.   He noted the that the                 
  default rate for programs for less  than 9 months range from                 
  24 to 56 percent.   He stated that the average  cost is $4.8                 
  thousand dollars.  He emphasized the high risk of vocational                 
  education programs.                                                          
                                                                               
  Representative  Brown  maintained  that  there  is a  public                 
  interest  in  making  it  possible   for  people  to  obtain                 
  vocational  education.    She  pointed  out  that university                 
  students  are  being  treated differently.    Mr.  McCormick                 
  stated that  the University  of Alaska  has budgets  ranging                 
  from $9.0 to $18.0  thousand dollars a year.  He pointed out                 
  that a $8.5 thousand dollar loan  does not finance an entire                 
  year.   He added that  university students attend  an entire                 
  academic year, while vocational programs may  be as short as                 
                                                                               
                                9                                              
                                                                               
                                                                               
  20 weeks.                                                                    
                                                                               
  Representative Brown noted that the accompanying fiscal note                 
  is zero.  Mr.  McCormick stated that costs will  be absorbed                 
  in the capital and operating budget requests.                                
                                                                               
  In  response  to  a question  by  Representative  Brown, Mr.                 
  McCormick explained that page 10 of the legislation attempts                 
  to bring  the WITCHIE  participation up  to date.   The  new                 
  language  asks  the  Commission   in  cooperation  with  the                 
  Department of Labor and Department  of Commerce and Economic                 
  Development to prioritize  programs.  He noted  that funding                 
  for WITCHIE  has been reduced.   He added that  this will be                 
  the second year without funding for new students.                            
                                                                               
  (Tape Change, HFC 95-97, Side 1)                                             
                                                                               
  Representative Grussendorf referred to section  4 on page 3.                 
  Mr.  McCormick  noted  that  students  attend school  on  an                 
  intermittent basis.  He stressed  the difficulty of tracking                 
  years in attendance.  He stated  that it is easier to  track                 
  the amount lent.                                                             
                                                                               
  Representative Grussendorf noted that  the default period is                 
  being  extended  by 60  days.   Mr. McCormick  stressed that                 
  another 60 days is helpful in  settling accounts.  He stated                 
  that the addition  allows students  additional time to  make                 
  arrangements for payments.                                                   
                                                                               
  Representative  Martin spoke in  support of the legislation.                 
  He  expressed concern  that academic  progress be  required.                 
  Mr. McCormick stated that students must demonstrate academic                 
  progress.                                                                    
                                                                               
  JENNIFER DEITZ, TRAVEL ACADEMY, ANCHORAGE  testified via the                 
  teleconference network.  She provided  members with a letter                 
  stating her position,  dated April 24, 1995 (Attachment 1).                  
  She testified in support  of HB 257.  She  expressed concern                 
  with  the provision  of  limiting eligibility  for  students                 
  participating  in educational  programs  of  less than  nine                 
  months.  She  urged that section  1(4) be revised.   Section                 
  1(4) would allow $3,000 thousand dollars for a full-time and                 
  $1.0 thousand dollars  for a  half-time student attending  a                 
  career education program of less than nine months.                           
                                                                               
  BONNIE  SMITH, PEOPLE  COUNT,  ANCHORAGE testified  via  the                 
  teleconference network.  She spoke  in opposition to section                 
  1(4), page 2.                                                                
                                                                               
  MARIE  BECKER, FAIRBANKS  testified  via the  teleconference                 
  network.   She  expressed concern  with section  1(4).   She                 
  stressed that  proprietary schools  help persons  that would                 
                                                                               
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  not otherwise attend a university.                                           
                                                                               
  Representative  Mulder asked  the statute  of limitation  on                 
  debt collection.   Mr.  McCormick  stated that  there is  no                 
  statute  of limitation  in regards  to debt collection.   He                 
  emphasized that the federal limit for short term programs is                 
  $4.2 thousand dollars.   The federal  limit for programs  of                 
  less than six months is $2,375 thousand dollars.                             
                                                                               
  In  response  to a  question  by Representative  Mulder, Ms.                 
  Deitz noted that  the average tuition at  the Travel Academy                 
  is $3.6  thousand dollars for a 10 to  20 week program.  She                 
  added that there is a federal grant aid program  that is not                 
  available to Alaskan students.                                               
                                                                               
  Mr. McCormick noted that under current  law a program can be                 
  as  short  as 6  weeks and  receive  the full  $5.5 thousand                 
  dollars.  He stressed that the average cost is $4.8 thousand                 
  dollars.                                                                     
                                                                               
  Representative  Navarre  noted  that  students  that  attend                 
  proprietary schools are  higher risks by  their nature.   He                 
  emphasized that  there have  been a  number  of students  of                 
  proprietary  schools that  have made  successful transitions                 
  from a welfare lifestyle.                                                    
                                                                               
  Ms.  Becker  gave  examples  of   students  that  have  been                 
  successful in obtaining jobs after attending People Count.                   
                                                                               
  Representative  Brown  referred  to  section  18,  regarding                 
  attachments  of permanent  fund  dividends.   Mr.  McCormick                 
  explained that the legislation would place the Commission as                 
  second in line  behind child support attachments.   He noted                 
  that the entire dividend can be attached.                                    
                                                                               
  In  response  to  a question  by  Representative  Brown, Mr.                 
  McCormick  clarified  that  interest  will  accrue during  a                 
  borrower's deferment.  He expressed support for allowing the                 
  interest  to  be  paid  during the  deferment  payment.   He                 
  stressed that a deferment of six years for military  service                 
  is too long.                                                                 
                                                                               
  Representative noted  that the legislation requires a person                 
  to be 100 percent  disabled.  Mr. McCormick stated  that the                 
  legislation  acknowledges  that  there  are  abuses  in  the                 
  program.  He noted that a person that is 50 percent disabled                 
  is  typically  able to  earn  income.   Representative Brown                 
  expressed concern that  someone who  is 90 percent  disabled                 
  and  unable  to  work  would   loose  their  permanent  fund                 
  dividend.   Mr. McCormick clarified that such a person could                 
  receive a hardship deferment.  He stated that the portion of                 
  loans affected would  be minimal.   He noted  that the  only                 
                                                                               
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  time a  permanent  fund  dividend is  garnished  is  if  the                 
  borrower is in  default.  The right  to defer a loan  due to                 
  disability is  given  up when  the loan  goes into  default.                 
  Hardship cases that  have not defaulted would  receive their                 
  dividends.                                                                   
                                                                               
  WENDY REDMAN, VICE PRESIDENT, UNIVERSITY  OF ALASKA spoke in                 
  support of HB 257.  She stated that the University of Alaska                 
  offers shorter certificated  programs.   She noted that  the                 
  University does support  the reduction  level of short  term                 
  programs.  She noted that the only way the Masters of Social                 
  Work Program will  be instituted  is to double  the cost  of                 
  graduate tuition.   She stressed that graduate  programs are                 
  becoming market driven.                                                      
                                                                               
  Representative Navarre  MOVED  to delete  "$3.0" and  insert                 
  "$4.5" and delete "1.0" and insert  "1.5" on page 2, line 2.                 
  He spoke in  support of  increasing the limit  on loans  for                 
  short term programs.   Representative  Mulder OBJECTED.   He                 
  stressed that some  of the  programs do not  result in  jobs                 
  that can support the repayment of the loan.                                  
                                                                               
  Representative Navarre suggested that language be added that                 
  would allow up to $4.5 thousand dollars but not more than 90                 
  percent of the program cost.   Mr. McCormick stated that the                 
  administrative cost  of the  program would  be increased  by                 
  allowing up to 90  percent of the program cost.  He stressed                 
  that the risk  should be limited  based on the high  default                 
  rates of short term programs.                                                
                                                                               
  A roll call vote was taken on the MOTION.                                    
                                                                               
  IN FAVOR: Brown, Grussendorf, Navarre, Hanley                                
  OPPOSED:  Kelly, Kohring, Martin, Mulder, Therriault                         
                                                                               
  Representatives Foster and Parnell were absent for the vote.                 
                                                                               
  The MOTION FAILED (4-5).                                                     
                                                                               
  Representative  Navarre MOVED  to delete  "$3.0" and  insert                 
  "$4.0" and delete "1.0" and insert "1.5" on page 2,  line 2.                 
  There being NO OBJECTION, it was so ordered.                                 
                                                                               
  Representative  Brown  noted  that  hardship  cases  can  be                 
  extended for up  to five  years in increments  of no  longer                 
  than  12  months each.    Mr.  McCormick  stated  that  some                 
  hardship loans due to disability are written off.                            
                                                                               
  Representative Martin MOVED to report CSHB 2357 (FIN) out of                 
  Committee  with  individual  recommendations  and  with  the                 
  accompanying fiscal notes.                                                   
                                                                               
                                                                               
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  Representative Brown  suggested that  the Commission  revise                 
  its fiscal note to reflect the cost of the legislation.  She                 
  stressed that the fate of the capital request is uncertain.                  
                                                                               
  (Tape Change, HFC 95-97, Side 2)                                             
                                                                               
  Mr. McCormick clarified  that the  revenue derived from  the                 
  Fund would  be used to  run the Commission.   Representative                 
  Brown  summarized that the funding source is not the General                 
  Fund.                                                                        
                                                                               
  There being NO OBJECTION, CSHB 257 was moved from Committee.                 
                                                                               
  CSHB 257  (FIN) was  reported out  of Committee  with a  "do                 
  pass" recommendation and  with two zero fiscal  notes by the                 
  Department of Education, one dated 3/22/95.                                  
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 4:05 p.m.                                           
                                                                               
                                                                               
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