Legislature(2003 - 2004)

04/15/2003 01:40 PM FIN

Audio Topic
* first hearing in first committee of referral
+ 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                                                                                            

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