Legislature(2013 - 2014)HOUSE FINANCE 519

04/15/2014 06:00 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 218 MUNI BOND BANK; UAF HEAT & PWR PLANT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+ SB 191 GENERAL OBLIGATION BOND FUND TRANSFER TELECONFERENCED
Heard & Held
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 15, 2014                                                                                           
                         6:11 p.m.                                                                                              
                                                                                                                                
6:11:34 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze  called the House Finance  Committee meeting                                                                   
to order at 6:11 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Suzanne  Armstrong,   Staff,   Senator  Kevin  Meyer;   Deven                                                                   
Mitchell,  Executive  Director,  Alaska Municipal  Bond  Bank                                                                   
Authority, Department  of Revenue; Brian  Rogers, Chancellor,                                                                   
University   of  Alaska  Fairbanks;   Laura  Pierre,   Staff,                                                                   
Senator  Anna  Fairclough  and  the  Legislative  Budget  and                                                                   
Audit  Committee; Deven  Mitchell,  Debt Manager,  Department                                                                   
of Revenue.                                                                                                                     
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Laura Comer,  Self, Fairbanks; Christina-Alexa  Liakos, Self,                                                                   
Fairbanks;  Carson Chavana, Self,  Fairbanks; Kelsi  Swenson,                                                                   
Student, University  of Alaska  Anchorage; Elisabeth  Allard,                                                                   
Self,  Wasilla;   Carly  Wier,  Self,  Anchorage;   Elizabeth                                                                   
Shoeffler,   Self,   Anchorage;   Kaitlynd   Ward,   Student,                                                                   
University of Alaska Anchorage.                                                                                                 
SUMMARY                                                                                                                       
                                                                                                                                
CSSB 191(FIN)                                                                                                                   
          GENERAL OBLIGATION BOND FUND TRANSFER                                                                                 
                                                                                                                                
          CSSB 191(FIN) was HEARD and HELD in committee for                                                                     
          further consideration.                                                                                                
                                                                                                                                
CSSB 218(FIN)                                                                                                                   
          MUNI BOND BANK; UAF HEAT & PWR PLANT                                                                                  
                                                                                                                                
          CSSB 218 (FIN) was HEARD and HELD in committee                                                                        
          for further consideration.                                                                                            
                                                                                                                                
CS FOR SENATE BILL NO. 218(FIN)                                                                                               
                                                                                                                                
     "An Act  relating to financing;  relating to  the Alaska                                                                   
     Municipal   Bond   Bank   Authority;   authorizing   the                                                                   
     University  of  Alaska to  issue  bonds to  finance  the                                                                   
     design, construction,  acquisition, and  equipping costs                                                                   
     of  the University  of Alaska Fairbanks  heat and  power                                                                   
     plant; authorizing  the University  of Alaska  to borrow                                                                   
     money from  the Alaska Municipal Bond Bank  Authority to                                                                   
     finance  the  design,  construction,   acquisition,  and                                                                   
     equipping  costs of the  University of Alaska  Fairbanks                                                                   
     heat  and power plant;  and providing  for an  effective                                                                   
     date."                                                                                                                     
                                                                                                                                
6:12:27 PM                                                                                                                    
                                                                                                                                
SUZANNE  ARMSTRONG,  STAFF,  SENATOR  KEVIN  MEYER,  provided                                                                   
introductory remarks  on the legislation. She  explained that                                                                   
the  bill  accomplished  three   objectives.  First,  SB  218                                                                   
increased the  borrowing limit  of the Alaska  Municipal Bond                                                                   
Bank (AMBB)  from $1  billion to  $1.5 billion. She  informed                                                                   
the committee that  the AMBB was a public corporation  of the                                                                   
state  and  was  established  in  1975.  The  bond  bank  was                                                                   
created to  aide Alaskan  communities with financing  capital                                                                   
improvement  projects.  She  read  exerts  from  the  sponsor                                                                   
statement:                                                                                                                      
                                                                                                                                
     The AMBB was  able to use the state's  credit support in                                                                   
     the form  of a  moral obligation  pledge backed  with an                                                                   
     annual  appropriation  to  achieve AA+  credit  ratings.                                                                   
     The AMBB was  able to leverage those ratings  into lower                                                                   
     interest  rates  than municipalities  would  be able  to                                                                   
     borrow independently.                                                                                                      
                                                                                                                                
Ms. Armstrong announced that every AMBB loan has been                                                                           
repaid. She continued with the sponsor statement.                                                                               
                                                                                                                                
     The  AMBB   has  saved  an  estimated  $67   million  in                                                                   
     borrowing  costs over  the last five  years through  the                                                                   
     issuance of  $578 million  of bonds. Following  the most                                                                   
     recent bond  issue, there were bonds outstanding  in the                                                                   
     amount  of $908  million, leaving  a remaining  capacity                                                                   
     of  $92  million.  Bond issues  currently  underway  are                                                                   
     anticipated to  exceed $80 million and will  use most of                                                                   
     the remaining cap.                                                                                                         
                                                                                                                                
     Without  the proposed increase  in the borrowing  limit,                                                                   
     it is  likely that over the  next 12-18 months  the AMBB                                                                   
     will  have fully  utilized the  current borrowing  limit                                                                   
     and municipalities  may be subjected to  borrowing funds                                                                   
     at higher  rates. The borrowing  limit for the  AMBB was                                                                   
     raised  most recently in  2010 from  $750 million  to $1                                                                   
     billion. In  2006, the borrowing  limit was  raised from                                                                   
     $500 million to $750 million.                                                                                              
                                                                                                                                
Ms. Armstrong continued with the second provision of the                                                                        
bill.                                                                                                                           
                                                                                                                                
     CS  SB 218 (FIN)  further provides  that the  University                                                                   
     of Alaska (UA) may utilize the AMBB for the                                                                                
     purpose  of issuing  debt, in  an amount  not to  exceed                                                                   
     $150 million.                                                                                                              
                                                                                                                                
Ms.  Armstrong delineated  that  statute  authorized AMBB  to                                                                   
loan  to   municipalities  or   "municipal  joint   insurance                                                                   
arrangements"  under AS 21.76.  The legislation expanded  the                                                                   
authority  of  AMBB  to  loan   to  UOA  for  construction  a                                                                   
combined heat and power plant on the Fairbanks campus.                                                                          
                                                                                                                                
She concluded with the third provision of the legislation.                                                                      
                                                                                                                                
     CS   SB  218   (FIN)  also   provides  the   legislative                                                                   
     approval,   required  under   AS   14.40.253,  for   the                                                                   
     issuance of  University of Alaska revenue  bonds and for                                                                   
     the  University  of Alaska  to  borrow money  and  enter                                                                   
     into a loan  agreement with the AMBB for  the purpose of                                                                   
     design, construction,  acquisition, and equipping  a new                                                                   
     heat and power plant at the University of Alaska                                                                           
     Fairbanks.                                                                                                                 
                                                                                                                                
Co-Chair Stoltze  wondered how close $1.5 billion  was to the                                                                   
state's  capacity.   He  noted   that  the  limit   had  been                                                                   
increased  almost annually  in a  short period  of time.  The                                                                   
limit  was  approximately  $300  million  10  years  ago.  He                                                                   
wondered what the "ceiling" was.                                                                                                
                                                                                                                                
DEVEN  MITCHELL, EXECUTIVE  DIRECTOR,  ALASKA MUNICIPAL  BOND                                                                   
BANK  AUTHORITY, DEPARTMENT  OF REVENUE,  explained that  the                                                                   
bond  bank operated  as a  "true  moral obligation  program."                                                                   
The  bond  bank  never  experienced   a  loan  default  by  a                                                                   
borrower.  Therefore, none of  its loans  can be included  in                                                                   
the  states   net  tax   supported  debt   for  purposes   of                                                                   
calculating the  debt capacity of  the state. If a  number of                                                                   
AMBB  loans ended  in  default  and relied  on  the state  to                                                                   
repay  the loan obligations  some  or all of  the bond  banks                                                                   
obligations would  be counted as  net tax supported  debt. He                                                                   
observed  that  determining  a   limit  on  the  bond  banks'                                                                   
lending authority  was more of  an "art" than  a calculation.                                                                   
He believed  the credit  limit increase  requested in  SB 218                                                                   
was a safe amount and would not result in a rating action.                                                                      
                                                                                                                                
Co-Chair  Stoltze   wondered  whether  a  proposal   of  $500                                                                   
million  in  the  following  year   would  alert  the  rating                                                                   
analysts.                                                                                                                       
                                                                                                                                
Mr. Mitchell replied  that it depended on the  "nature of the                                                                   
moral obligation"  and cautioned that a loan  associated with                                                                   
risk would raise alarms.                                                                                                        
                                                                                                                                
Co-Chair Austerman pointed to page 6, line 4.                                                                                   
                                                                                                                                
     (1) the anticipated annual payment amount is                                                                               
     $7,000,000;                                                                                                                
                                                                                                                                
He  wondered  who  would  make   the  annual  payment  of  $7                                                                   
million.                                                                                                                        
                                                                                                                                
Mr. Mitchell answered  that the legislation allowed  the bond                                                                   
bank  to purchase  bond  issues with  the  University for  an                                                                   
amount up  to $150 million. Under  Section 9 of the  bill the                                                                   
university's  loan limit  would  be $87.5  million. The  loan                                                                   
would be  secured by a "subordinated  revenue pledge"  by UA.                                                                   
The amount collected  by UA would be obligated  minus certain                                                                   
operating costs. He  alluded to the fiscal note  FN1 (UA) and                                                                   
explained that the  state would assist with  the university's                                                                   
obligations, which aligned with the states past practice.                                                                       
                                                                                                                                
6:21:06 PM                                                                                                                    
                                                                                                                                
BRIAN  ROGERS, CHANCELLOR,  UNIVERSITY  OF ALASKA  FAIRBANKS,                                                                   
added  that  the original  fiscal  note  had provided  for  a                                                                   
state appropriation  of $7 million per year  of general funds                                                                   
to repay  the AMBB  loan and  for the  university to  pay the                                                                   
costs  through  fuel  savings  and additional  fees  for  the                                                                   
repayment  of  the portion  of  the  $70 million  bond  issue                                                                   
authorized  with university  receipts. He  revealed that  the                                                                   
university  was working  on  a revised  fiscal  note "to  put                                                                   
them in  balance." The revision  depended on the  adoption of                                                                   
an amendment that had not been offered yet.                                                                                     
                                                                                                                                
Co-Chair  Austerman   wanted  clarification   regarding  bond                                                                   
repayment.                                                                                                                      
                                                                                                                                
Mr.  Rogers responded  that there  were two  bonds; an  $87.5                                                                   
million  bond issue that  would be  paid by  the state  and a                                                                   
$70  million   university   bond  that   would  be  paid   by                                                                   
university revenues  and savings generated from  lowered fuel                                                                   
costs.                                                                                                                          
                                                                                                                                
Co-Chair  Austerman clarified  that the  state would  pay the                                                                   
$7 million from the general fund.                                                                                               
                                                                                                                                
Mr. Rogers replied in the affirmative.                                                                                          
                                                                                                                                
Representative Gara  ascertained that the state  would pay $7                                                                   
million  per year;  the university  would pay  the other  $70                                                                   
million  with savings  and university  receipts. He  wondered                                                                   
who paid the debt service.                                                                                                      
                                                                                                                                
Mr. Mitchell replied  that the underlying borrowers  paid the                                                                   
debt service. He  emphasized that the obligation  belonged to                                                                   
the university.                                                                                                                 
                                                                                                                                
Representative   Gara   asked    whether   historically   the                                                                   
municipalities  paid the debt  service on  the bonds  and the                                                                   
state had not paid any debt service costs.                                                                                      
                                                                                                                                
Mr. Mitchell replied in the affirmative.                                                                                        
                                                                                                                                
Representative Costello  wondered where the remainder  of the                                                                   
$245  million total  costs  for the  power  plant would  come                                                                   
from.                                                                                                                           
                                                                                                                                
Ms.  Armstrong replied  that  SB  119>Budget: Capital];  the                                                                   
capital  budget  bill contained  a  university  appropriation                                                                   
for  $37 million  and a  reappropriation of  $50 million  for                                                                   
the balance.                                                                                                                    
                                                                                                                                
Representative  Costello  inquired   about  the  $50  million                                                                   
reappropriation.  She wondered  what the  original source  of                                                                   
the funding was.                                                                                                                
                                                                                                                                
Ms.   Armstrong  answered   that  it   originated  from   the                                                                   
Sustainable   Energy  Transmission   Solutions  (SETS)   fund                                                                   
established  in SB  25>Aidea: Sustainable  Energy/  Interest                                                                   
Rate - Enacted September 2012] in 2012.                                                                                         
                                                                                                                                
Representative  Costello asked  if the  $37.5 million  amount                                                                   
was undesignated general funds (UGF).                                                                                           
                                                                                                                                
Ms.   Armstrong  replied   that  the   amount  derived   from                                                                   
designated general funds (DGF).                                                                                                 
                                                                                                                                
Co-Chair  Stoltze asked  whether  the SETS  fund  had been  a                                                                   
loan program in the past.                                                                                                       
                                                                                                                                
Ms. Armstrong  remembered that SETS  was formed to be  a loan                                                                   
and  loan  guarantee  program  under  the  Alaska  Industrial                                                                   
Development and Export Authority (AIDEA).                                                                                       
                                                                                                                                
Co-Chair  Austerman  understood  that the  SETS  program  had                                                                   
been  originally designed  as a  loan program.  He asked  for                                                                   
verification  that  the $50  million  was not  a  loan but  a                                                                   
deduction from the fund.                                                                                                        
                                                                                                                                
Ms.  Armstrong answered  in  the affirmative.  She  indicated                                                                   
that the  money was a reappropriation  of funds from  SETS to                                                                   
the power plant project.                                                                                                        
                                                                                                                                
Representative  Wilson  inquired  whether UAF  students  were                                                                   
exclusively being  assessed the  university's portion  of the                                                                   
bond repayment in the form of higher tuitions fees.                                                                             
Mr. Rogers responded  that the additional  university receipt                                                                   
revenue  would be  derived from  other  receipts and  student                                                                   
receipts.  The  Board  of Regents  made  decisions  regarding                                                                   
tuition  increases. He  believed the Board  of Regents  would                                                                   
consider that the plant benefitted the Fairbanks campus.                                                                        
                                                                                                                                
Representative  Wilson  thought  that the  university  system                                                                   
was unified and  that tuition increases were  assessed system                                                                   
wide.                                                                                                                           
                                                                                                                                
Mr.   Rogers  replied   that   board  policy   conventionally                                                                   
expended  the  funds on  the  campus  where the  tuition  was                                                                   
raised.                                                                                                                         
                                                                                                                                
Representative Wilson  wondered whether the  Fairbanks campus                                                                   
would still  be able  to compete with  other branches  of the                                                                   
university if tuition  costs were much higher  due to bearing                                                                   
the cost of such an expensive project alone.                                                                                    
                                                                                                                                
Mr. Rogers  replied that tuition  decisions were made  by the                                                                   
Board of Regents and he could not speak to the issue.                                                                           
                                                                                                                                
Representative  Wilson believed  the issue  was important  to                                                                   
determine  prior to passing  the legislation.  A much  higher                                                                   
tuition   increase  for   the  Fairbanks   campus  would   be                                                                   
alarming.  Expenses could  be absorbed  better if the  entire                                                                   
university system  was working together. She hoped  the board                                                                   
understood the repercussions of such a decision.                                                                                
                                                                                                                                
Co-Chair   Stoltze   referred   to  his   college   education                                                                   
experience at  the UAF campus.  He remembered  paying student                                                                   
fees  on   indebtedness.  He   wondered  whether   allocating                                                                   
tuition fees to pay a bonded indebtedness was common.                                                                           
                                                                                                                                
Mr. Rogers  reported that  the student  recreation center  on                                                                   
the Fairbanks  campus was  a student  financed facility.  The                                                                   
bonded  indebtedness  was  currently being  paid  by  student                                                                   
fees. He was  not aware of other student  financed facilities                                                                   
with  the exception  of  student housing;  a  portion of  the                                                                   
debt was paid by student housing fees.                                                                                          
                                                                                                                                
Co-Chair  Stoltze clarified  that since  he attended  college                                                                   
it  was uncommon  for students  to pay  for the  university's                                                                   
bonded indebtedness.                                                                                                            
                                                                                                                                
Mr. Rogers  affirmed and  replied that  it had only  occurred                                                                   
at the Fairbanks campus.                                                                                                        
                                                                                                                                
6:33:05 PM                                                                                                                    
                                                                                                                                
Representative  Holmes  referred  to  the  $37.5  million  in                                                                   
designated general  funds. She  inquired about the  source of                                                                   
the funds.  Ms. Armstrong responded  that the funds  were set                                                                   
aside for the Alaska Capital Income Fund.                                                                                       
                                                                                                                                
Representative   Holmes   understood   that   typically   the                                                                   
municipalities  repaid its debt  back to  the bond  back. She                                                                   
wondered  whether SB  218 was  the first  instance where  the                                                                   
state would be paying the bonded indebtedness.                                                                                  
                                                                                                                                
Mr. Mitchell answered  that there were other  municipal joint                                                                   
insurance  agreement  allowances  in statute  but  was  never                                                                   
acted  upon. He  restated that  "from  the AMBB  perspective"                                                                   
the  university was  repaying  the loan  not  the state.  The                                                                   
bond  banks commitments  were  directly  from the  university                                                                   
and the state's role was "through the back door."                                                                               
                                                                                                                                
Representative Holmes  wanted to understand  the university's                                                                   
and  the state's  role in  repaying the  bonds. She  wondered                                                                   
what the state's actual or moral obligation was.                                                                                
                                                                                                                                
Mr. Rogers answered  that the $70 million was  referred to in                                                                   
the   legislation.   He  explained   that   the   legislature                                                                   
authorized  the  university  to  issue  $70  million  with  a                                                                   
notice of debt payment in SB 218.                                                                                               
                                                                                                                                
Mr. Mitchell  replied that  the moral  obligation applied  to                                                                   
any  bonds issued  by  AMBB. He  was uncertain  whether  bond                                                                   
analysts would want  the university bonds counted  as net tax                                                                   
supported debt. He  said the same argument could  be made for                                                                   
all  of the  university's  outstanding  debt because  of  the                                                                   
existing  financial  relationship  with  the  state.  Through                                                                   
AMBB's potential  authorization the university  had a conduit                                                                   
to access  the capital  market at  the highest ratings  (AA+)                                                                   
that it  would not  normally be  able to  attain through  its                                                                   
own senior  lien debt.  The state  would benefit through  the                                                                   
use  of the  bond  bank  which  allowed the  university  much                                                                   
better leverage.                                                                                                                
                                                                                                                                
Representative Holmes  wondered what the payments  on the $87                                                                   
million were.                                                                                                                   
                                                                                                                                
Mr. Mitchell  answered that the  interest rate and  term were                                                                   
the  primary factors  in  determining repayment.  The  actual                                                                   
amount depended  on the  final structuring  of the  debt. The                                                                   
payments  were referred  to in the  university's fiscal  note                                                                   
FN1 (UA).                                                                                                                       
Representative   Holmes  clarified   that  the  fiscal   note                                                                   
appropriated approximately $7 million per year for payment.                                                                     
                                                                                                                                
Mr. Mitchell  answered in the  affirmative and  recalled that                                                                   
the  payment  was  based  on   a  20  year  amortization  and                                                                   
relatively  high interest  rate compared  to rates that  were                                                                   
currently available.                                                                                                            
                                                                                                                                
Representative  Holmes surmised  that the  payment was  based                                                                   
on a conservative estimate.                                                                                                     
                                                                                                                                
Mr. Mitchell answered in the affirmative.                                                                                       
                                                                                                                                
Co-Chair Stoltze  asked if  the money for  the SETS  fund was                                                                   
classified as DGF.                                                                                                              
                                                                                                                                
Ms. Armstrong  expressed uncertainty  and would follow  up on                                                                   
the question.                                                                                                                   
                                                                                                                                
Co-Chair  Stoltze believed  that  there was  a "much  broader                                                                   
vision for  the SETS fund." He  recounted that when  the SETS                                                                   
fund was  established only two  years ago it  was capitalized                                                                   
with unrestricted  general funds through the  capital budget.                                                                   
The  SETS funding  was a  major component  for the  Fairbanks                                                                   
gas  trucking bill  [SB  23  AIDEA: LNG  Project;  Dividends;                                                                   
Financing -  Enacted June 2013]  for the Interior  last year.                                                                   
He thought  the funds  were being  "swept out"  and that  the                                                                   
SETS fund should have lasted longer than two years.                                                                             
                                                                                                                                
Representative  Guttenberg asked  for an  explanation of  the                                                                   
total power plant financing package.                                                                                            
                                                                                                                                
Mr.  Rogers replied  that  the total  project  cost was  $245                                                                   
million.  He detailed that  the board's  initial request  was                                                                   
for  $195  million  from  the state  and  $50  million  self-                                                                   
financed  through the fuel  cost savings  by the  university.                                                                   
The $50  million had grown to  $70 million factoring  the use                                                                   
of  new fees  and  other  income  leaving the  remainder  the                                                                   
obligation  of the  state.  The current  UAF  heat and  power                                                                   
plant   provided  heat   and   electricity   to  the   entire                                                                   
university campus;  it was built in 1962 and  was anticipated                                                                   
to  have a  useful  life of  50  years. The  current  project                                                                   
upgrade  replaced   two  old   coal  boilers,   substantially                                                                   
reduced emissions,  and increased  efficiency which  resulted                                                                   
in  fuel  cost  savings. He  summarized  that  the  financing                                                                   
package used  state operating  and capital funds,  university                                                                   
receipts, and fuel savings.                                                                                                     
Representative Guttenberg  communicated that the  plant was a                                                                   
heating  plant  that provided  power  but  was not  a  "power                                                                   
plant."                                                                                                                         
                                                                                                                                
Co-Chair Austerman  thought that  statewide tuition  would be                                                                   
used to repay the bond debt.                                                                                                    
                                                                                                                                
Mr.  Rogers  answered  that  the Board  of  Regents  had  not                                                                   
decided on  any repayment portion  being paid by  tuition. He                                                                   
thought  that   an  opportunity   to  use  other   funds  was                                                                   
possible. The decision  would be made in 2017  when the first                                                                   
bond payment  was due.  He reiterated  the board policy  that                                                                   
tuition  generated at  a particular  campus was  used at  the                                                                   
campus.                                                                                                                         
                                                                                                                                
Co-Chair Austerman  commented that the fiscal note,  FN1 (UA)                                                                   
described  a 20-year payoff  at 5  percent interest  totaling                                                                   
$140 million  over time. He  wondered whether there  had been                                                                   
discussion about paying the entire $87.5 million.                                                                               
                                                                                                                                
Ms.   Armstrong  replied   that  there   had  been   multiple                                                                   
conversations   about   how   to  fund   the   project.   The                                                                   
discussions  with members  of  the Senate  Finance  Committee                                                                   
and university lead to the current financing package.                                                                           
                                                                                                                                
Mr. Mitchell interjected  that the current bond  bank 20 year                                                                   
rate was 3.45 percent.                                                                                                          
                                                                                                                                
Representative  Munoz asked for  further clarification  about                                                                   
the amount of the AMBB loan.                                                                                                    
                                                                                                                                
Ms. Armstrong answered  that the bond bank issuance  would be                                                                   
$87.5  million.  She referred  to  an amendment  the  sponsor                                                                   
hoped to offer that would clarify the issue.                                                                                    
                                                                                                                                
Representative  Munoz  understood  that the  university  also                                                                   
incurred a bonded indebtedness of $70 million.                                                                                  
                                                                                                                                
Ms. Armstrong answered in the affirmative.                                                                                      
                                                                                                                                
Representative  Munoz asked  how the  university intended  to                                                                   
repay the debt.                                                                                                                 
                                                                                                                                
Mr. Rogers  responded that the  $70 million would be  paid by                                                                   
fuel  cost savings  and new  revenues.  The university  spent                                                                   
approximately  $10 million  per  year and  the upgrade  would                                                                   
decrease the  cost to  under $6  million per year.  Currently                                                                   
the university  used coal, diesel, and  purchased electricity                                                                   
for heat.  The new  plant would  generate the entire  campus'                                                                   
heating needs.                                                                                                                  
                                                                                                                                
Representative  Munoz asked for  verification that  the $87.5                                                                   
million would be paid back by the general fund.                                                                                 
                                                                                                                                
Ms.  Armstrong replied  that  the debt  service  would be  an                                                                   
item in  the university's operating  budget. She  referred to                                                                   
the discussions  regarding financing  the project  and shared                                                                   
that  student fees  other than  tuition such  as, a  facility                                                                   
fuel surcharge may  be assessed to students  and others using                                                                   
the building  as well. A  tuition increase was  not specified                                                                   
in  the discussions  and  the  board  had the  discretion  to                                                                   
examine all options  that may be available to  repay the debt                                                                   
service.                                                                                                                        
                                                                                                                                
6:50:15 PM                                                                                                                    
                                                                                                                                
Representative  Munoz asked  for verification  that the  bond                                                                   
indebtedness  would  be  repaid   through  a  combination  of                                                                   
university receipts and general fund supports.                                                                                  
                                                                                                                                
Ms. Armstrong answered in the affirmative.                                                                                      
                                                                                                                                
Representative  Munoz clarified  that the  $70 million  would                                                                   
be repaid  through fuel cost  savings and a possible  tuition                                                                   
increase.                                                                                                                       
                                                                                                                                
Ms. Armstrong answered  in the affirmative and  stressed that                                                                   
"other  fees"  could  be  assessed in  lieu  or  addition  to                                                                   
tuition.                                                                                                                        
                                                                                                                                
Representative   Munoz  asked   whether  the  [other]   $87.5                                                                   
million from  SETS and  the Alaska  Capital Income  Fund were                                                                   
grants.                                                                                                                         
                                                                                                                                
Ms.  Armstrong replied  that the  funds were  a direct  state                                                                   
appropriation.                                                                                                                  
                                                                                                                                
Representative  Costello referred  to the university's  aging                                                                   
heat  and power  plant. She  wondered  what the  university's                                                                   
emergency backup plan was.                                                                                                      
                                                                                                                                
Mr.  Rogers answered  that in  addition to  two coal  boilers                                                                   
there  were two oil  boilers that  had the  capacity to  heat                                                                   
the campus.  If employed, the  fuel bill would rise  from $10                                                                   
million up  to $30 million  annually. He  did not want  to be                                                                   
in  a situation  to  employ the  oil  boilers  when the  coal                                                                   
boilers broke down.                                                                                                             
                                                                                                                                
Representative   Edgmon  wondered   whether  the   university                                                                   
completed the design work.                                                                                                      
                                                                                                                                
Mr.   Rogers  answered   that  the   conceptual  design   was                                                                   
completed  sufficient  to  obtain  a permit.  The  next  step                                                                   
would be  to purchase the  main boilers and turbines  through                                                                   
competitive  bid.  Once the  vendors  were chosen  the  plant                                                                   
would be designed around the fixed equipment.                                                                                   
                                                                                                                                
Representative  Edgmon   asked  whether  a   partial  funding                                                                   
package could move the project forward.                                                                                         
                                                                                                                                
Mr.  Rogers responded  that the  university  could not  issue                                                                   
the university  bonds until  the entire  project was  secured                                                                   
since  there  would   be  no  fuel  savings   for  repayment.                                                                   
Uninterrupted  construction   of  the  plant   was  the  most                                                                   
efficient way to carry out the project.                                                                                         
                                                                                                                                
Co-Chair Stoltze  gave the  university credit for  convincing                                                                   
people  in  a university  environment  that  solar  and  wind                                                                   
would not be the answer.                                                                                                        
                                                                                                                                
Mr. Rogers agreed.  He informed the committee  that there had                                                                   
been  no  adverse   public  comment  during   the  permitting                                                                   
process with  the acknowledgement of the  project's increased                                                                   
fuel efficiency.                                                                                                                
                                                                                                                                
Representative   Holmes  asked  about   the  timing   of  the                                                                   
project.  Mr.  Rogers  answered  that  the  university  would                                                                   
begin   site   preparation   in   the   current   year.   The                                                                   
construction  would  begin  in  2015 and  would  conclude  in                                                                   
2018.                                                                                                                           
                                                                                                                                
Representative Holmes  wondered how the  phase in of  the new                                                                   
plant would work.                                                                                                               
                                                                                                                                
Mr.  Rogers  answered  that the  upgrade  would  not  disrupt                                                                   
operations of the current plant.                                                                                                
                                                                                                                                
Vice-Chair  Neuman  wondered  whether  the  bond  bank  would                                                                   
issue bonds if the borrower was unable to repay them.                                                                           
                                                                                                                                
Mr.  Mitchell answered  that  AMBB had  a  rigid process  for                                                                   
analyzing  loans.  The  bank utilized  an  independent  third                                                                   
party  financial   advisor  that  reviewed   applications  in                                                                   
addition  to the  AMBB board.  Due to  the rigorous  approval                                                                   
process  all of the  loans had  been repaid.  The bank  had a                                                                   
100 percent expectation of repayment.                                                                                           
                                                                                                                                
Co-Chair Austerman OPENED public testimony.                                                                                     
                                                                                                                                
LAURA COMER,  SELF, FAIRBANKS (via teleconference),  spoke in                                                                   
opposition  to the bill.  She was  astonished that  the Board                                                                   
of  Regents had  not  determined the  student's  contribution                                                                   
towards  payment for  the  power plant.  She  felt that  many                                                                   
questions that  arose during the hearing  remained unanswered                                                                   
and  that  the   student  body  was  burdened   by  increased                                                                   
financial   costs.  Residents   of  Fairbanks  were   already                                                                   
leaving  the community  because  of  health concerns  due  to                                                                   
poor air  quality. She  believed that  requiring students  to                                                                   
shoulder the burden  of a coal plant and tying  the campus to                                                                   
"outdated"  technology   for  50  years  was   "absurd."  She                                                                   
advocated for  spending on alternative energy  solutions. She                                                                   
thought that  most banks  would not  finance coal plants  and                                                                   
believed  that  the  plant  would not  pay  for  itself.  She                                                                   
questioned  the financial and  environmental repercussion  of                                                                   
constructing  the  power  plant   and  reiterated  that  many                                                                   
questions were not  answered. She urged the  committee not to                                                                   
support the project, deeming it an "incomplete idea."                                                                           
                                                                                                                                
CHRISTINA-ALEXA     LIAKOS,      SELF,     FAIRBANKS     (via                                                                   
teleconference),   opposed  the  legislation.   She  believed                                                                   
questions  remained about  the  plants financing  and  wanted                                                                   
answers.  She was  concerned that  the Board  of Regents  had                                                                   
not yet  met to  discuss solutions  or the students  expected                                                                   
financial   participation.   She   thought  the   burden   of                                                                   
repayment  might  drive up  tuition  costs and  increase  the                                                                   
dropout  rate.  She  wondered   whether  other  options  were                                                                   
explored.   She   understood   that  there   was   geothermal                                                                   
potential  in the  Fairbanks area.  She  believed there  were                                                                   
more sustainable  options. She wondered whether  the Usebelli                                                                   
coal company financially influenced the decision.                                                                               
                                                                                                                                
Co-Chair  Stoltze   remarked  that   the  donations   of  the                                                                   
Usebelli family were appreciated by the university.                                                                             
                                                                                                                                
7:04:22 PM                                                                                                                    
                                                                                                                                
CARSON CHAVANA,  SELF, FAIRBANKS (via teleconference),  spoke                                                                   
to her  overwhelming student  debt as  a recent graduate  due                                                                   
to  growing  tuition  costs. She  sympathized  with  students                                                                   
that  may not  support the  project.  She wished  alternative                                                                   
solutions  were explored. She  believed that  there may  be a                                                                   
substantial funding  gap even with tuition or  fee increases.                                                                   
She  urged  the  committee to  retrofit  the  existing  plant                                                                   
while looking into "viable" renewable energy options.                                                                           
                                                                                                                                
KELSI SWENSON,  STUDENT, UNIVERSITY OF ALASKA  ANCHORAGE (via                                                                   
teleconference),  spoke  against the  bill.  She referred  to                                                                   
the  phrase  "moral obligations."  She  felt  that  it was  a                                                                   
moral  obligation  for  the university  to  provide  for  the                                                                   
welfare of  students. She spoke  in strong opposition  to the                                                                   
project.  She believed  the  coal  plant was  a  "despicable"                                                                   
option  in  the face  of  climate  change  and the  poor  air                                                                   
quality  in Fairbanks.  She wanted  the  university to  "pave                                                                   
the way"  for clean renewable  energy options. She  was upset                                                                   
the  hearing had  been  scheduled  with short  notice  during                                                                   
finals  week. She  thought that  the student  body was  being                                                                   
burdened  with  environmental  and  financial  costs  of  the                                                                   
project. She implored  the university to place  more value on                                                                   
its student body                                                                                                                
                                                                                                                                
ELISABETH ALLARD,  SELF, WASILLA (via teleconference),  spoke                                                                   
against the  project. She commented  that Fairbanks  had poor                                                                   
air quality. She  felt that the university's  decision was to                                                                   
choose  a  coal  fired  plant  instead  of  healthier  energy                                                                   
options was  unacceptable. She reported that  she experienced                                                                   
nine air quality  advisory days in Fairbanks in  the last six                                                                   
months.   She  believed   that   the  Usebelli   coal   plant                                                                   
contributed  to  poor  air  quality   in  Fairbanks  and  was                                                                   
lobbying  the   university  to   construct  the   plant.  She                                                                   
discussed that the  university was an intellectual  "hub" and                                                                   
should  be at  the forefront  of  alternative solutions.  She                                                                   
believed it was  shameful that the university  was seeking to                                                                   
build a  coal powered  plant when  other campuses around  the                                                                   
country  were   divesting  from  coal.  She   considered  the                                                                   
project   "egregious",  "fiscally   irresponsible"  and   not                                                                   
worthy  of the  increased  financial  burden on  the  student                                                                   
body.  She   stressed  that  increased  tuition   equated  to                                                                   
increased student  debt. She  vehemently opposed  the project                                                                   
and  suggested the  university  retrofit  the current  plant,                                                                   
reduce  energy consumption,  and  utilize alternative  energy                                                                   
to offset coal use.                                                                                                             
                                                                                                                                
CARLY WIER,  SELF, ANCHORAGE  (via teleconference),  spoke in                                                                   
opposition to  the bill. She  was deeply concerned  about the                                                                   
state's financial  future. She was concerned that  using coal                                                                   
as an  energy solution  was a  "resounding step backward"  in                                                                   
finding  clean   energy  solutions  for  the   Interior.  She                                                                   
referred  to prior  public testimony  on  the capital  budget                                                                   
concerning  alternative   energy  solutions.  She   felt  the                                                                   
budget items  were a strong  and wise investments  that would                                                                   
support healthy  communities. She  felt compelled  to testify                                                                   
about  the $245  million coal  plant because  the costs  were                                                                   
too high.  She asked how  the funds would  be paid  back. She                                                                   
believed  the students  should have  a right  to weigh  in on                                                                   
how  the funds,  derived from  increased  tuition or  student                                                                   
fees, would  be spent.  She understood  that the plant  would                                                                   
be constructed  to burn coal and  biomass and how  that would                                                                   
affect  air quality.  She  believed many  of  her friends  in                                                                   
Fairbanks  were considering  moving  due to  the city's  poor                                                                   
air quality.  She wondered  if the plant  should be  built to                                                                   
accommodate natural  gas. She  believed it was  "shocking and                                                                   
irresponsible"  to  rush  into  an  exorbitant  project  with                                                                   
unanswered questions.                                                                                                           
                                                                                                                                
ELIZABETH  SHOEFFLER, SELF,  ANCHORAGE (via  teleconference),                                                                   
opposed  the legislation.  She  spoke against  using  funding                                                                   
for  renewable  energy  options  to  help  finance  the  coal                                                                   
plant.  She believed  the coal  plant was  unhealthy for  the                                                                   
students  and did  not want to  help fund  the plant  through                                                                   
increased  tuition  or  fees.  She asked  the  university  to                                                                   
consider alternative energy sources.                                                                                            
                                                                                                                                
KAITLYND WARD,  STUDENT, UNIVERSITY OF ALASKA  ANCHORAGE (via                                                                   
teleconference),  spoke  in opposition  of  the project.  She                                                                   
was  concerned  about  potential increases  in  tuition.  She                                                                   
felt  unanswered   questions  remained  about   repaying  the                                                                   
project  and the  impact  on student  fees  and tuition.  She                                                                   
wondered  how the  project  could  move forward  without  the                                                                   
Board  of Regents  meeting. She  spoke to  the importance  of                                                                   
clean and renewable energy.                                                                                                     
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
Representative  Wilson  noted that  there  was  a reason  the                                                                   
university  had opted against  using natural  gas. She  asked                                                                   
for a  reiteration about what  the plant would do  to current                                                                   
emissions.                                                                                                                      
                                                                                                                                
Mr.  Rogers answered  that during  the  planning process  the                                                                   
university  examined twelve different  options that  included                                                                   
a wide range  of technologies and fuels for  the project. The                                                                   
coal  option had  been selected  based  on the  environmental                                                                   
benefits,  the  economics,  and  the ability  to  permit  the                                                                   
project.                                                                                                                        
                                                                                                                                
Mr. Rogers  spoke to  the environmental  benefits; the  plant                                                                   
would  reduce  pm  2.5 (particulate  matter  2.5  microns  or                                                                   
less)  emissions  by  45 percent,  oxidized  nitrogen  by  64                                                                   
percent, and oxidized  sulfur by 60 percent.  Every regulated                                                                   
emission  would  be lower  than  it  was at  present.  Carbon                                                                   
dioxide  would  also  be  lower. The  capital  costs  of  the                                                                   
natural  gas   plant  were   significantly  lower,   but  the                                                                   
lifespan was also  significantly lower. A natural  gas boiler                                                                   
would actually  increase  pm 2.5 through  the exhaust  stream                                                                   
by  secondary   products  of   combustion.  Extra   costs  to                                                                   
mitigate pm 2.5  would be incurred by using  natural gas. The                                                                   
fuel costs  would  be $10 million  higher annually  if  a gas                                                                   
plant was constructed  due to the projected  costs of trucked                                                                   
in natural  gas. The new coal  plant could be  retrofitted to                                                                   
use natural  gas at a  cost of $3  million to $5  million for                                                                   
natural gas provided  the university could obtain  the permit                                                                   
and mitigate the particulate matter emissions.                                                                                  
                                                                                                                                
7:20:11 PM                                                                                                                    
                                                                                                                                
Representative  Wilson asked about  retrofitting the  current                                                                   
boiler.                                                                                                                         
                                                                                                                                
Mr. Rogers  answered that the  university could  not retrofit                                                                   
the current  boilers to use  natural gas. The  university did                                                                   
retrofit an oil boiler to use both oil and natural gas.                                                                         
                                                                                                                                
Representative Wilson  wondered if the two old  boilers could                                                                   
be  removed  and  the new  ones  installed  in  the  existing                                                                   
facility as a cost savings.                                                                                                     
                                                                                                                                
Mr.  Rogers replied  in the  negative. He  detailed that  the                                                                   
current boilers were  necessary year around and  could not be                                                                   
shut down.                                                                                                                      
                                                                                                                                
Representative   Wilson  recalled   that   the  $25   million                                                                   
appropriated from  the SETS fund for natural  gas trucking in                                                                   
the interior  was a loan  and not a  grant. She asked  if the                                                                   
university explored  extending the  loan repayment  period to                                                                   
lower costs.                                                                                                                    
Mr. Rogers  answered that  the university  had looked  at the                                                                   
municipal  bond  bank  extending  out  the  payment  schedule                                                                   
which reduced the current fiscal note.                                                                                          
                                                                                                                                
Co-Chair  Austerman  spoke  to  prior  testimony  by  Patrick                                                                   
Gamble,  President  of  the University  of  Alaska,  who  had                                                                   
spoken  about a  deferred  maintenance  fund.  He pointed  to                                                                   
deferred  maintenance  funding   in  the  governor's  capital                                                                   
budget  totaling $37.5  million. The  Senate Finance  Capital                                                                   
Budget  had  removed   the  funds.  He  wondered   about  the                                                                   
connection.                                                                                                                     
                                                                                                                                
Mr. Rogers  noted that  the Senate  Finance Committee  budget                                                                   
had   reduced   only   the  UAF   capital   budget   deferred                                                                   
maintenance funds.                                                                                                              
                                                                                                                                
Co-Chair  Austerman asked  for  clarification; the  reduction                                                                   
appeared to  apply to all of  the districts and not  just the                                                                   
Fairbanks campus.                                                                                                               
                                                                                                                                
Ms. Armstrong  replied that the  $37.5 million  only impacted                                                                   
districts  1 through  5  which  only included  the  Fairbanks                                                                   
campus.                                                                                                                         
                                                                                                                                
CSSB 218(FIN)  was HEARD  and HELD  in committee for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
7:27:25 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
7:28:30 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
CS FOR SENATE BILL NO. 191(FIN)                                                                                               
                                                                                                                                
     "An  Act relating  to the authority  of the  Legislative                                                                   
     Budget  and Audit  Committee  to approve  the  temporary                                                                   
     transfer   of   money   from   the   general   fund   to                                                                   
     construction  funds or  accounts; and  providing for  an                                                                   
     effective date."                                                                                                           
                                                                                                                                
SUZANNE  ARMSTRONG,  STAFF, SENATOR  KEVIN  MEYER,  discussed                                                                   
the  legislation.  She  announced  that SB  191  provided  an                                                                   
administrative fix,  established parameters  for transferring                                                                   
general funds  to General Obligation Bonds  (GO) construction                                                                   
funds,  and enabled  better flexible  management  of GO  bond                                                                   
construction   funds   and  accounts   by   the  State   Bond                                                                   
Committee.   She   delineated   that   when   the   GO   bond                                                                   
construction    fund    was   temporarily    exhausted    the                                                                   
commissioner  of the  Department of  Administration (DOA)  on                                                                   
recommendation by  the bond committee and  Legislative Budget                                                                   
and Audit Committee  (LBA) approval may  temporarily transfer                                                                   
funds  from the  general fund  into the  bond fund. Under  SB                                                                   
191, if the transfer did not exceed 25 percent  of the amount                                                                   
of the GO bond,  the Commissioner did not need  LBA approval.                                                                   
In addition,  SB 191 authorized  a 15-month loan  period when                                                                   
advanced funds  were transferred from  the General Fund  to a                                                                   
GO Bond construction  fund. The change aligned  with Internal                                                                   
Revenue Service  (IRS) requirements  that "advance  fund bond                                                                   
issuance  loans  were  repaid  by  bond  proceeds  within  18                                                                   
months."  She  noted  the  proposed  shorter  timeframe  than                                                                   
required by the  IRS. She added that the  legislation enabled                                                                   
more  certainty  in  project  schedules  and  cash  flow  and                                                                   
greater capability  for the State Bond Committee  to "respond                                                                   
to  unforeseen   increases  in   project  expenditures."   In                                                                   
addition,   SB  191   facilitated   greater  flexibility   in                                                                   
implementing bond  sales. The statute change  "eliminated the                                                                   
negative   carry  costs   of   borrowed   funds  sitting   in                                                                   
construction funds for extended periods of time."                                                                               
                                                                                                                                
Representative  Holmes asked  for clarification  about how  a                                                                   
transfer  from  the  general fund  could  occur  without  any                                                                   
legislative oversight.                                                                                                          
                                                                                                                                
LAURA  PIERRE,   STAFF,  SENATOR  ANNA  FAIRCLOUGH   AND  THE                                                                   
LEGISLATIVE BUDGET  AND AUDIT COMMITTEE, replied  that SB 191                                                                   
eliminated the  LBA authorization  requirement if  the amount                                                                   
of the transfer  did not exceed 25 percent  of the authorized                                                                   
bond amount however, notification was still required.                                                                           
                                                                                                                                
Representative  Holmes  wondered  what  amount  of  money  25                                                                   
percent of the authorized bond amount typically was.                                                                            
                                                                                                                                
DEVEN  MITCHELL,   DEBT  MANAGER,   DEPARTMENT  OF   REVENUE,                                                                   
replied  that the  authorization  required  was technical  in                                                                   
nature.    The    legislature     currently    granted    the                                                                   
administration  the authorization  to borrow  up to the  full                                                                   
amount  of the bond  for the  same purpose  without terms  of                                                                   
repayment.  The flexibility  currently  existed  but must  be                                                                   
reauthorized each  year in the  operating budget.  He offered                                                                   
that a  situation  could occur  where the debt  was not  sold                                                                   
over  a certain  time  period  and was  not  included in  the                                                                   
operating  budget. He  continued  that the  only  outstanding                                                                   
bond  debt  authorization happened  with  the  Transportation                                                                   
Act of  2012 which  amounted to  approximately $450  million.                                                                   
Twenty  five  percent  of approximately  $110  million  could                                                                   
have been  authorized  for cash  flow purposes  for up  to 15                                                                   
months.                                                                                                                         
                                                                                                                                
Mr.  Mitchell discussed  instances  when  the flexibility  to                                                                   
transfer   funds    without   approval   would    have   been                                                                   
advantageous.  He detailed that  the state  did not  issue GO                                                                   
bonds for  a long  period of time  but had the  authorization                                                                   
in  1984 and  2003.  The  federal  and IRS  requirements  and                                                                   
restrictions  currently  were  much  more  stringent  on  tax                                                                   
exempt  debt than  they had been  in 1984.  The bill  allowed                                                                   
the  state to  meet the  restrictions;  one such  restriction                                                                   
required the  state to  spend the proceeds  from the  sale of                                                                   
tax  exempt  bonds  within  three  years  which,  had  proven                                                                   
problematic.  In  2003  the  state  sold  approximately  $450                                                                   
million in  transportation bonds  and did  not expend  all of                                                                   
the   funds   until   2012.  The   three   year   limit   was                                                                   
unattainable.  In 2008 the  Transportation Act was  approved,                                                                   
but a  portion of  the funds had  been replaced with  general                                                                   
funds. The  state was  only able  to sell approximately  half                                                                   
of the  bond authorization of  $165 million in April  2009 to                                                                   
fund  18 months  of  cash  flow.  The American  Recovery  and                                                                   
Reinvestment  Act  (ARRA) had  been  approved  and the  funds                                                                   
were not expended  until 2013. The $165 million  was borrowed                                                                   
at a  4 percent  interest rate  amortized for  20 years.  The                                                                   
state  could not  reinvest the  proceeds over  the long  term                                                                   
therefore;  the department  was very  conservative about  the                                                                   
reinvestment  of  proceeds.  The  negative  carry  associated                                                                   
amounted  to  millions  of dollars.  The  department  learned                                                                   
that it  needed to approach  the bond issues  differently and                                                                   
to  the extent  possible  sell  "just  in time"  rather  than                                                                   
upfront in anticipation of a project.                                                                                           
                                                                                                                                
7:38:02 PM                                                                                                                    
                                                                                                                                
Representative  Holmes  ascertained  that  due to  the  three                                                                   
year  limit, which  the state  was not  able to  consistently                                                                   
meet, from  the time that  the state  sells the bonds  to the                                                                   
time  the  state  must  expend the  funds,  the  state  would                                                                   
rather borrow it  from the general fund and pay  it back with                                                                   
bond funds. She asked for verification.                                                                                         
                                                                                                                                
Mr.  Mitchell  concurred.  He  elaborated that  there  was  a                                                                   
potential  for  certain  cash   flow  issues  to  arise  when                                                                   
funding projects "just  in time." A project can  speed up and                                                                   
the state  cannot  execute a bond  issue in  one month;  more                                                                   
time  was  needed  to structure  the  loan.  The  legislation                                                                   
provided the flexibility to meet the need on time.                                                                              
                                                                                                                                
Representative  Holmes  wondered if  it  had been  a  problem                                                                   
obtaining  Legislative  Budget  and  Audit  approval  in  the                                                                   
past.  She wondered  why  LBA  should be  "taken  out of  the                                                                   
picture."                                                                                                                       
                                                                                                                                
Mr. Mitchell replied that the timing element was a factor.                                                                      
                                                                                                                                
Co-Chair  Stoltze asked  about the  discussion regarding  the                                                                   
issue in LBA committee.                                                                                                         
                                                                                                                                
Ms. Pierre  answered that prior  to the drafting of  the bill                                                                   
Senator  Fairclough had  met with the  Department of  Revenue                                                                   
and Mr.  Mitchell to discuss  the legislation  in particular.                                                                   
She relayed  that Senator  Fairclough "had  no problem"  with                                                                   
the  legislation.   She  cited  page   2,  line  8,   of  the                                                                   
legislation  and related  that  Senator Fairclough  requested                                                                   
that  LBA  be notified  when  such  transfers  occurred.  The                                                                   
allowance was in  line with other funds such  as the Disaster                                                                   
Relief Fund and the DEC Spill Response Fund.                                                                                    
                                                                                                                                
Co-Chair Stoltze  asked if the  Legislative Budget  and Audit                                                                   
Committee had taken formal action to support the bill.                                                                          
Ms. Pierre replied in the negative.                                                                                             
                                                                                                                                
Vice-Chair Neuman  asked whether the flexibility  would allow                                                                   
the department to  save the state money by  watching interest                                                                   
rates and borrowing  money later or earlier  depending on the                                                                   
interest rate.                                                                                                                  
                                                                                                                                
Mr. Mitchell  replied that there  could be an  opportunity to                                                                   
save money  by not  borrowing money  as quickly and  obligate                                                                   
the negative carry  in the construction fund.  He exemplified                                                                   
that if  the state lost 3  percent of $100 million  the state                                                                   
would pay  $3 million  in interest expense  just to  have the                                                                   
money  sit in the  bank. He  pointed to  another example.  He                                                                   
reported  that market  disturbances  like the  crash in  2008                                                                   
potentially caused  losses. At the  time of the  market crash                                                                   
he was  working on a transaction  with the Matanuska  Susitna                                                                   
Borough on  a correctional facility.  He attempted  to "price                                                                   
the deal"  on December  7, 2008. At  the time, the  statutory                                                                   
limit on  the debt  service was  $17.8 million annually.  The                                                                   
interest rates were  too high at the time to  meet the limit.                                                                   
The  design  and build  contractor  was  ready to  begin  and                                                                   
could  terminate the  contract  on December  31st. The  state                                                                   
ultimately  sold the  bonds on  December 31,  2008 for  fewer                                                                   
than 6 percent  and three months  later it would have  been 5                                                                   
percent.  He believed  that the  situation led  to the  state                                                                   
paying a higher  interest rate, and exemplified  the need for                                                                   
granting the department the increased flexibility.                                                                              
                                                                                                                                
Vice-Chair Neuman  surmised that the flexibility  to maneuver                                                                   
had the potential for considerable savings.                                                                                     
                                                                                                                                
Mr.  Mitchell answered  that  that  would be  a  goal of  the                                                                   
legislation.  He voiced  that the "easily  defined" goal  was                                                                   
meeting the IRS code limit for the tax exempt bond issues.                                                                      
                                                                                                                                
Co-Chair  Stoltze wondered  why LBA had  not taken  committee                                                                   
action  on  the  matter.  He  believed  it  would  have  been                                                                   
"cleaner."                                                                                                                      
                                                                                                                                
Representative  Gara  asked  what   provision  in  the  state                                                                   
constitution  permitted money  withdrawals  from the  general                                                                   
fund without legislative authorization.                                                                                         
                                                                                                                                
Mr. Mitchell  answered that GO  bond debt did not  require an                                                                   
appropriation for  repayment. He  was not certain  whether an                                                                   
appropriation  was  required   for  using  general  funds  as                                                                   
liquidity for an anticipated general bond issue.                                                                                
                                                                                                                                
Representative   Gara   wanted   the  state   to   have   the                                                                   
flexibility  to borrow  as inexpensively  as possible  but he                                                                   
thought  a constitutional  prohibition  against general  fund                                                                   
withdrawal without legislative approval existed.                                                                                
                                                                                                                                
Mr.  Mitchell  responded  that  other  instances  were  cited                                                                   
earlier  where authority  to use  general  funds existed.  He                                                                   
reiterated  that the AMBB  had the  authority to borrow  from                                                                   
the general fund.  The bond transfer would borrow  funds from                                                                   
the  general  fund for  the  purposes  of liquidity  and  the                                                                   
general fund would be replenished.                                                                                              
                                                                                                                                
Representative  Gara  restated  that  general  constitutional                                                                   
rule  stated  that money  could  not  be withdrawn  from  the                                                                   
general fund  without legislative  approval. He wondered  how                                                                   
the provision was  legal. He wondered if the  bill would help                                                                   
reduce the student loan interest rate.                                                                                          
                                                                                                                                
Ms. Pierre  answered that  the bill he  was referring  to was                                                                   
SJR 23.                                                                                                                         
7:49:39 PM                                                                                                                    
                                                                                                                                
Representative  Munoz asked if  there were examples  when the                                                                   
LBA committee had slowed down the process.                                                                                      
                                                                                                                                
Mr. Mitchell replied  in the negative. He offered  that there                                                                   
was an  instance when  timing  with the LBA  meetings was  an                                                                   
issue in resolving a cash flow matter.                                                                                          
                                                                                                                                
Co-Chair Stoltze OPENED public testimony.                                                                                       
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
Co-Chair Stoltze  pointed to the zero fiscal  note, FN1 (REV)                                                                   
from the Department of Revenue.                                                                                                 
                                                                                                                                
Representative Gara  wanted someone to point to  the location                                                                   
in the constitution that authorized the provision.                                                                              
                                                                                                                                
Co-Chair  Austerman cited  Article 9  [Finance and  Taxation]                                                                   
Section 13  of the  Alaska Constitution  and referred  to the                                                                   
words "appropriated  by law." He  surmised that SB 191  was a                                                                   
law allowing the appropriation.                                                                                                 
                                                                                                                                
Representative Edgmon  referred to the previous  bill [SB 218                                                                  
Muni  Bond Bank;  UAF Heat  &  Pwr Plant]  and asked  whether                                                                   
passage of SB 191 affected SB 218.                                                                                              
                                                                                                                                
Mr. Mitchell replied in the negative.                                                                                           
                                                                                                                                
Co-Chair  Stoltze  wondered whether  the  25 percent  was  an                                                                   
absolute  maximum or  was the  25 percent  limit allowed  for                                                                   
each transfer of funds.                                                                                                         
                                                                                                                                
Mr.  Mitchell  replied   that  it  was  the   intent  of  the                                                                   
administration  that the limit  was up to  25 percent  of the                                                                   
total  bond   authorization.  He  exemplified   that  a  $100                                                                   
million bond  allowed borrowing of  up to $25 million  at any                                                                   
point  in  time  for  to  15   months  for  the  purposes  of                                                                   
liquidity.                                                                                                                      
                                                                                                                                
Co-Chair Stoltze cited page 1 line 11:                                                                                          
                                                                                                                                
     If the amount of the transfer exceeds 25 percent of                                                                        
     the amount …                                                                                                               
                                                                                                                                
Co-Chair Stoltze  inserted the word "cumulative"  in front of                                                                   
transfer  and wondered  if that would  more clearly  indicate                                                                   
the  intent  of the  25  percent  limit  and not  "harm"  the                                                                   
legislation.                                                                                                                    
                                                                                                                                
AT EASE                                                                                                                         
7:55:40 PM                                                                                                                    
                                                                                                                                
RECONVENED                                                                                                                      
7:56:25 PM                                                                                                                    
                                                                                                                                
Mr.  Mitchell   pointed   out  that  once   employed   for  a                                                                   
particular  authorization the  language  would eliminate  the                                                                   
ability  to  use  the provision  for  future  potential  bond                                                                   
issue use.  He suggested using  language that  indicated that                                                                   
the 25 percent was "rolling."                                                                                                   
                                                                                                                                
Representative  Holmes wondered  whether it  was possible  to                                                                   
hold   the  bill   until  the   proper   language  could   be                                                                   
identified.                                                                                                                     
                                                                                                                                
Representative   Costello   asked   if   adding   the   word,                                                                   
"initially  authorized"  after  amount  to  read,  "  If  the                                                                   
amount  of the  transfer  exceeds 25  percent  of the  amount                                                                   
initially authorized."                                                                                                          
                                                                                                                                
Co-Chair  Stoltze wanted  to ensure clarity  in the  language                                                                   
and thought the issue was a "very important policy" matter.                                                                     
                                                                                                                                
Representative  Holmes  believed  that the  committee  needed                                                                   
more time to find the proper language.                                                                                          
                                                                                                                                
Ms. Armstrong stated  her willing to work with  the committee                                                                   
to ensure that  the language was correct and  that the impact                                                                   
would affect the intent of the provision.                                                                                       
                                                                                                                                
Co-Chair  Stoltze  wanted to  prevent  future  abuses of  the                                                                   
provision  via clarification  and to ensure  that the  intent                                                                   
of the sponsor was met.                                                                                                         
                                                                                                                                
Co-Chair Austerman  asked about the full paragraph  on page 1                                                                   
beginning on line 6. He read:                                                                                                   
                                                                                                                                
     "When a construction fund or account established to                                                                        
     receive the proceeds of state general obligation                                                                           
     bonds…"                                                                                                                    
                                                                                                                                
Co-Chair   Austerman   wondered    whether   the   words   "a                                                                   
construction  fund   or  account"  met  the  intent   of  the                                                                   
legislation. He  thought that  the language was  not specific                                                                   
enough.                                                                                                                         
                                                                                                                                
Mr.  Mitchell answered  that  when general  obligation  bonds                                                                   
were  authorized   a  fund  was  simultaneously   created  to                                                                   
deposit  the   proceeds.  The   language  referred   to  that                                                                   
particular  fund. He  suggested  the amendment  language  "at                                                                   
any time" after the word transfer to read:                                                                                      
                                                                                                                                
     "If the amount of the transfer at any time exceeds 25                                                                      
     percent of the amount authorized"                                                                                          
                                                                                                                                
Mr. Mitchell  explained that the  25 percent limit  could not                                                                   
be exceeded without approval from LBA.                                                                                          
                                                                                                                                
Co-Chair  Stoltze asked  whether the  suggestion matched  the                                                                   
intent of the sponsor.                                                                                                          
                                                                                                                                
Ms. Pierre replied in the affirmative.                                                                                          
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
8:04:04 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 8:04 p.m.                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
sponsorstatement.sb218.pdf HFIN 4/15/2014 6:00:00 PM
SB 218
sectional analysis.sb218fin.pdf HFIN 4/15/2014 6:00:00 PM
SB 218
SB 218 Amendment #1 Thompson.pdf HFIN 4/15/2014 6:00:00 PM
SB 218