Legislature(2019 - 2020)ADAMS ROOM 519
04/01/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB87 | |
| HB106 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 106 | TELECONFERENCED | |
| + | HB 87 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 1, 2019
1:30 p.m.
1:30:01 PM
CALL TO ORDER
Co-Chair Wilson called the House Finance Committee meeting
to order at 1:30 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
None
ALSO PRESENT
Representative Steve Thompson, Bill Sponsor; Dan Britton,
General Manager, Interior Gas Utility; Colleen Glover,
Director, Tax Division, Department of Revenue; Lynn Gattis,
Staff, Representative Tammie Wilson; Tim Mearig, Facilities
Manager, Department of Education and Early Development;
Nils Andreassen, Executive Director, Alaska Municipal
League; Heidi Teshner, Administrative Services Director,
Department of Education and Early Development, Office of
Management and Budget.
PRESENT VIA TELECONFERENCE
Bryce Ward, Mayor, Fairbanks North Star Borough, Fairbanks;
Michael Meeks, Chief of Staff, Fairbanks North Star
Borough, Fairbanks; John Cook, J and J Development,
Fairbanks; Jomo Stewart, Fairbanks Economic Development
Corporation, Fairbanks; Jim Anderson, Chief Finance
Officer, Anchorage School District; Bryce Ward, Mayor,
Fairbanks North Star Borough, Fairbanks; Cheyenne Heindel,
Mat-Su Borough, Palmer; Lucy Nelson, Northwest Arctic
Borough, Kotzebue; Dr. Annmarie O'Brien, Superintendent,
Northwest Arctic School District, Kotzebue.
SUMMARY
HB 87 LIQUEFIED NATURAL GAS STORAGE TAX CREDIT
HB 87 was HEARD and HELD in committee for further
consideration.
HB 106 SCHOOL BOND DEBT REIMBURSEMENT
HB 106 was HEARD and HELD in committee for
further consideration.
Co-Chair Wilson reviewed the agenda for the day.
HOUSE BILL NO. 87
"An Act extending the liquefied natural gas storage
facility tax credit; and providing for an effective
date."
1:30:39 PM
REPRESENTATIVE STEVE THOMPSON, BILL SPONSOR, introduced
himself and thanked the committee for hearing his bill. He
read a prepared statement:
This bill came about through conversations with
stakeholders in the Interior about our progress on
efforts to mitigate high energy costs and improve our
air quality. A key theme in these conversations has
been the importance of ensuring that we're doing
everything we can to stay on track with the Interior
Energy Project. In 2015, the Legislature passed HB 105
to renew and advance the Interior Energy Project, a
project designed to bring low cost energy to as many
residents and businesses of Interior Alaska as quickly
as possible. It has resulted in the creation of the
Interior Gas Utility a not-for-profit public utility
serving the Interior.
In 2012, the Legislature passed legislation to
incentivize the development of liquid natural gas
storage, a key component in achieving the economy of
scale that will enable widespread use of natural gas
in Fairbanks and North Pole. This legislation provided
credits for the construction of above ground LNG
storage facilities with a capacity of 25,000 gallons
or more. There are currently two projects underway,
one in Fairbanks and one in North Pole, that will
benefit from these credits.
HB 87 will extend the sunset date of the original
legislation by 18 months in order to ensure that the
projects underway will be able to capitalize on the
existing credits. This is a bill that can help to
lower energy costs and improve air quality in an area
of the State that desperately needs to do both.
Representative Thompson relayed that the general manager of
the Interior Gas Utility, Dan Britton, would be giving a
slide presentation. He noted there were several people
online who wanted to testify to the bill.
1:33:38 PM
DAN BRITTON, GENERAL MANAGER, INTERIOR GAS UTILITY,
introduced himself and the PowerPoint Presentation:
"Fueling the Future." He thanked the committee for the
opportunity to speak to them about important storage tax
credits for the community of Fairbanks. He began with slide
2: "Interior Energy Project Purpose and Goals: Interior
Alaska." He relayed that the purpose of the Interior Energy
Project was to bring low-cost energy to as many residents
and businesses of Interior Alaska as possible in a timely
fashion. Other goals of the project were to stabilize the
economy and to help improve air quality.
Mr. Britton discussed slide 3: "History":
• Fairbanks Natural Gas, LLC(FNG) began operating in
Fairbanks in Spring of 1998 giving Interior residents
a natural gas heating option. Over 1100 residential
and commercial customers are currently able to enjoy
the benefits of natural gas.
• In November 2012, the Fairbanks North Star
Borough(FNSB) acquired its natural gas utility power
via transfers from the City of Fairbanks and the City
of North Pole and established the Interior Alaska
Natural Gas Utility(IGU).
• May 2018, the IGU consolidated with FNG and now
operates as an integrated, not-for-profit public
utility.
Mr. Britton continued to slide 4: "Energy Costs and Air
Quality." He indicated that some of the reasons the project
was so important to the community were listed on the slide.
He read the slide contents:
• According to the Council for Community and Economic
Research, the FNSB typically has the highest utility
costs in the nation for the 300-plus urban areas
regularly surveyed.
• In September 2006, the EPA lowered the National
Ambient Air Quality Standards for fine particulate
matter less than 2.5 micrometer in diameter (PM 2.5) a
human health hazard.
• In 2009, the EPA designated the more populated
portions of the FNSB as a non-attainment area relating
to PM2.5. The eastern portion of the non-attainment
area (North Pole) has the worst air pollution in the
nation, three and a half times the legal limit and
almost two times worse than the next worse area in the
U.S.
• The FNSB's long-term efforts for clean air are focused
on bringing clean, affordable natural gas to the
Fairbanks area for space heating.
Mr. Britton moved to the chart on slide 5: "Heating Cost
Comparison: U.S. Natural Gas vs. Anchorage Natural Gas vs.
Fairbanks Heating Fuel Equivalent." He explained that the
slide showed a comparison of the price of heating fuel in
Fairbanks to the price of natural gas in Anchorage and in
the United States. He pointed out that the cost of heating
in Fairbanks was higher than most places in Alaska with
natural gas service.
Mr. Britton reviewed the chart on slide 6: "Heating Cost
Comparison: Fairbanks Heating Fuel vs. Fairbanks Natural
Gas Equivalent." He noted the slide showed the historical
heating costs in Fairbanks to heating oil. He indicated the
green line represented stably priced energy. The blue line
represented the cost of heating oil. For the most part, the
price of natural gas was less costly than heating oil, but
at times of low oil costs, heating oil could be slightly
less.
Mr. Britton continued to slide 7: "Fairbanks Large LNG
Storage Tank." There were 2 projects he would discuss with
the committee. The first project was the Fairbanks large
liquified natural gas (LNG) storage tank. The tank had a
capacity of 5.25 million gallons and was a
full-containment, double-wall design - the safest
available. He noted that construction started in January
2018 and was advancing on schedule. The estimated
completion date was Fall 2019, and the total construction
cost of the project was $58.4 million. The tank had been
termed, "The heart of the interior project." The tank
allowed for new customers and would begin to alleviate poor
air quality.
Mr. Britton turned to the picture on slide 8: "9th (Last)
Row Welding." The picture showed the inside of the LNG
tank. He pointed out the suspended deck and the aluminum
ceiling. He reported that the steel inside tank was made of
9 percent nickel. Liquified natural gas was stored at -260
degrees Fahrenheit. The specialty alloys could handle the
cold temperatures.
Mr. Britton discussed the picture of the outer tank stairs
on slide 9. He reported that the tank was almost complete,
and stairs were being added to the tank. The piping and
venting were also being worked on currently. Good progress
was being made on the facility.
1:38:51 PM
Mr. Britton advanced to slide 10: "North Pole Storage." He
reported that in addition to the Fairbanks storage
facility, there was a storage facility under design for
North Pole. Distribution systems had been installed in
Fairbanks and North Pole. The North Pole storage facility
was designed to serve the previously installed distribution
system. He read the slide:
• Design of the $12.1 Million LNG storage facility in
North Pole is complete and a Request for Proposals was
issued February 14, 2019. Proposals are due March 21,
2019.
• The targeted completion of construction is November
15, 2019 with operational startup and commissioning by
December 31, 2019.
• The storage facility will have two 75,000 Gallon
storage tanks and a multi-purpose building and will be
connected to the previously constructed 73 miles of
pipe infrastructure in the North Pole area.
Mr. Britton expounded that the two tanks that were part of
the facility would be relocated from the existing storage
facility, currently providing service in Fairbanks, once
the new 5.25 million gallon tank came online.
Mr. Britton continued to the North Pole Storage site plan
on slide 11. He pointed to the two 75,000 tanks. There was
an area where the trucks could offload. He noted the
vaporization equipment that would bring the gas from -260
degrees Fahrenheit to 50 degrees Fahrenheit to be injected
into the distribution pipe. The facility was located across
from what was historically the Flint Hills Refinery and
from one of Golden Valley Electric's power plants. Golden
Valley Electric would be a potential consumer of natural
gas in the future.
Mr. Britton reviewed the benefits of storage on slide 12.
He read from the slide:
• The development of expanded LNG storage facilities in
the Fairbanks and North Pole areas is a critical
component of the IEP as they will increase the
security of supply and provide capacity to serve a
greater number of new customers.
• These storage facilities, with current liquefaction
infrastructure, enable IGU the ability to serve
approximately 3000 new residential customers beginning
the summer 2020.
• The state's LNG storage tax credits are vital in
helping to bring down the cost of providing natural
gas to Interior residents.
• All money from tax credits for tanked storage will be
under the oversight of the Regulatory Commission of
Alaska, the IGU Board and the FNSB Assembly to ensure
these savings are passed along to the rate payers.
Mr. Britton reviewed the estimated impact on rates on
slide 13. The Fairbanks facility would qualify for the
maximum available credit of $15 million. The alternative
was 50 percent of the total capital costs. The North Pole
facility, with a $12 million capital investment, would
qualify for an approximate $6 million credit. The total
credits for the two facilities would equal $21 million. The
range of the rate benefit to consumers based on the current
demand was almost $2 per 1,000 cubic feet. Under the best
case demand, the amount was about $0.72 per 1,000 cubic
feet. As demand grew, the cost would be spread over more
volume. If the Interior Gas Utility was unsuccessful with
storage tax credits, it would need to incur approximately
$21 million in additional debt directly impacting customer
costs.
Mr. Britton advanced to the map of installed piping in
Fairbanks on slide 14 which included approximately 140
miles of distribution pipe network. A significant portion
of Fairbanks had access to Natural Gas. On the South side
of the map there was a small red square showing the
location of the storage facilities from which the gas would
be sent out into the distribution system.
1:43:28 PM
Mr. Britton turned to slide 15 showing the map of the 72-
mile installed piping network in North Pole. It was South
of Hurst Road in one of the higher areas of non-attainment
for poor air quality. He offered that expanding gas into
the area was extremely important.
Co-Chair Wilson commented that she did not have a conflict
of interest because the pipe did not run to her house.
Vice-Chair Ortiz clarified that without granting credits to
North Pole and Fairbanks the borough would take on an
additional $21 million in debt. He asked if he was correct.
Mr. Britton replied that it would be the rate payers of the
Interior Gas Utility who would take on the debt. The
borough would not take on the debt, rather it would be the
utility.
Vice-Chair Ortiz suggested that if the state were to take
up the credits, it would be obligated in the initial $21
million. He wondered if he was accurate.
Mr. Britton responded in the affirmative. The state would
pay the tax credits.
Representative LeBon informed the committee that the pipe
ran in front of his home in House District 1. He noted that
his district contained the heaviest concentration of piping
extending to residential and commercial properties. He
noted that the community of Fairbanks had been waiting
about 50 years for the project to come online. Although
service was already available to 1,100 Fairbanks customers
since 1998, the concentration for the home owner was
significantly greater than under Fairbanks Natural Gas. He
was excited about the project and asked committee members
to support the extension of the timeline for the credits.
They were critical to the energy needs of Fairbanks and to
breathing clean air which provided multiple benefits.
Representative Josephson commented on the slide reflecting
3,000 customers. He was trying to determine if more storage
facilities would be needed with a population of about
90,000 in the Fairbanks area.
Mr. Britton responded that the facilities under development
represented the first step for the Interior Energy Project.
The storage facilities allowed the utility to add new
customers. The next step would be additional liquefaction
capacity. The utility was currently designing to expand
liquefaction from 50,000 gallons per day to 100,000 gallons
per day with an additional 100,000 gallons per day. The
board of directors approved the utility moving forward with
the front end engineering and design work for the project.
The Storage facility allowed the utility to use its
existing production assets running them 365 days per year.
The utility would fill the storage in the summer and draw
it down during the winter to meet peak needs of the first
group of 3,000 new customers. The additional liquefaction
capacity allowed the utility to go beyond 3,000 customers
and to begin adding the following several thousand. The
storage facilities were meant to satisfy the Interior
Energy Project's storage needs well into the future.
1:47:55 PM
Co-Chair Wilson directed Ms. Glover from the Department of
Revenue to review the fiscal note.
COLLEEN GLOVER, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, indicated she had visited the storage tank in
Fairbanks and was very impressed by it. The fiscal note had
a zero fiscal impact to the Tax Division. It was an
extension of an existing credit that was already programed
into the division's system. The fiscal note was
indeterminate because of the division not wanting to
forecast tax payer confidential information. The taxpayer
had provided new information required for the credit. Also,
she relayed that if the credit was extended, it could open
up to new entities that the state was not aware of. She
reported that no one had received the credits to-date. The
period of the extension was 18 months and would only apply
to LNG storage facilities with a certain capacity. There
were provisions in current statute that if the facilities
were to cease operation within a certain amount of time,
after 9 years they would have to pay back a portion of the
credits. These provisions did not change with the bill. The
bill had an immediate effective date.
Co-Chair Wilson asked if the credit was a cashable credit
or one that could be taken off of their tax liability.
Ms. Glover responded that the credit could be handled
either way. The tax credit could be paid with cash from the
Oil and Gas Tax Credit Fund or it could be taken as a
credit against a facility's state corporate income tax.
1:50:05 PM
Co-Chair Wilson OPENED Public Testimony.
BRYCE WARD, MAYOR, FAIRBANKS NORTH STAR BOROUGH, FAIRBANKS
(via teleconference), spoke in support of the bill. He
indicated that the Fairbanks North Star Borough (FNSB) had
approximately 100,000 residents with about 25,000 homes.
The additional 3,000 new customers, made possible with the
expansion of the storage tanks, was 3,000 of the 25,000
homes. The project was also a key component in addressing
the air quality issues in the Interior by allowing a
cleaner source of energy to be used for wood, solid fuel
burning heating mechanisms, and for oil fired heating
devices within a home. Natural gas was a much cleaner
source of fuel than fuel oil or some of the other solid
burning appliances currently being used. Currently, the
majority of the FNSB was in a non-attainment area. It was
critical for the borough to address the current air quality
problem.
1:52:07 PM
MICHAEL MEEKS, CHIEF OF STAFF, FAIRBANKS NORTH STAR
BOROUGH, FAIRBANKS (via teleconference), spoke in favor of
the bill. He had been an original board member for the
Interior Gas Utility. As chairman and vice chairman of the
board, he attested that the Interior needed the gas tax
extension for LNG storage facilities. The last financial
model he had seen incorporated the tax credits into IGU's
calculation for the estimated cost at the meter for the
customer. He suggested that without the extension, the
price of the meter would increase for the customer, and the
number of customers that would convert from fuel oil to
natural gas would decrease. The loss of the tax credits
would mean that IGU would have to make up the money somehow
- most likely through bonds incurring more debt. The loss
of the tax credits would incur an additional $21 million in
debt and would add an additional $1.93/MCF to the customer
using the current demand forecast models. The cost at the
meter had to be low enough to attract customers. The
project was already challenged with customer density issues
and costs. He did not want to make things harder by loosing
the credits. The increased costs would do nothing to help
the air quality issues and energy security concerns in
Fairbanks. He asked members to support the legislation.
1:53:23 PM
JOHN COOK, J AND J DEVELOPMENT, FAIRBANKS (via
teleconference), spoke in support of HB 87. His company
owned and had developed much of the retail land in the
Bentley Trust area since about 2006 or 2007. He explained
that most of the box stores that came in built off of the
same footprint nationwide. They used gas-fired heaters and
air conditioners to heat their stores and were not able to
heat with other sources. His company had not been able to
add uninterruptable supply. For several years it had
hampered his company from developing its property and
providing jobs and economic development to Fairbanks.
Previous legislatures and administrations had been
supportive of the legislation to-date. He urged members to
support the bill.
1:55:42 PM
JOMO STEWART, FAIRBANKS ECONOMIC DEVELOPMENT CORPORATION,
FAIRBANKS (via teleconference), spoke in support of the
bill and the project. He indicated that the tax credit
extension would help with the last portion of state
investment. He hoped the state would follow through. The
LNG storage project was a follow on to the Cook Inlet
Recovery Act of 2010. The bill represented a similar state
investment in above-ground natural gas storage for a
community in the heart of Alaska that could use the cost of
energy assistance as well as help with air quality issues.
He hoped the committee would support and help the
legislation move forward.
1:57:05 PM
Co-Chair Wilson CLOSED public testimony.
Co-Chair Wilson indicated the bill would be set aside.
HB 87 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 106
"An Act relating to school bond debt reimbursement."
1:57:18 PM
LYNN GATTIS, STAFF, REPRESENTATIVE TAMMIE WILSON, relayed
that the bill would simply extend the termination date for
the school bond debt reimbursement program with an an
effective date of July 1, 2025. The bill was a 5-year
extension request.
1:58:27 PM
HEIDI TESHNER, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF EDUCATION AND EARLY DEVELOPMENT, OFFICE OF MANAGEMENT
AND BUDGET, reviewed the zero fiscal note. She referred to
the OMB component number 153. She explained that the note
was zero because the bill was simply extending the debt
moratorium. The current costs of the program would continue
and there would be no additional costs because of no new
debts coming online until 2026.
Co-Chair Wilson asked if the bill would affect the debt the
state currently had.
Ms. Teshner replied that the bill would extend the payments
of the debt the state currently had. For FY 20, $100
million would be paid out. Going forward, each year the
amount would decrease depending on when current projects
and associated bonds in the system were closed out.
Representative Josephson asked if the Regional Educational
Attendance Area (REAA) programs would be impacted with a
reduction in the outlay for programs they had in the que
based on priority.
Ms. Teshner replied that currently the REAA and Small
Municipal School District Fund calculation was based on the
annual debt service for the program. Representative
Josephson was correct that the amount would decrease over
the following 5 years, as it had over the previous 5 years,
if the moratorium were to be continued. The district REAAs
could still apply for the school construction and major
maintenance CIP list every year. They would be competing
with other projects and would be funded through the non-REA
fund.
Representative Josephson commented that there was another
avenue for REAAs to receive state revenue that would not be
impacted by the legislation.
Ms. Teshner clarified that REAAs would still be able to
apply for the major maintenance and school construction
funds. Currently they could be funded, depending on their
ranking, through the REAA fund. If they were to rank high
enough and the appropriations for major maintenance or
school construction projects, they could receive a direct
appropriation outside of the REAA fund. Funding would be
contingent on the amount of appropriations the Department
of Education and Early Development (DEED) received.
Vice-Chair Ortiz asked about the potential impacts of
extending the sunset. He was particularly curious about the
impacts to borough areas and non-REAA areas.
Co-Chair Wilson answered that the Fairbanks North Star
Borough had gone out for bonds. Currently, the community
had paid 100 percent for the bonds. It was the same for all
municipalities in the previous 5 years.
Vice-Chair Ortiz wondered if any assessment had been done
on whether other boroughs would be crippled in advancing
other projects with an extension of the sunset.
Co-Chair Wilson commented that there were several people
waiting in the que to testify. She thought his questions
would be answered.
Co-Chair Foster commented that regarding the ordering
question for the REAAs, the first school on the new school
construction list was for $37 million, and the second
school was for $10 million. If the state fully funded the
debt reimbursement, the REAAs would receive $39 million. He
asked if the second school with a cost of only $10 million
would move into first place if only $20 million was
available. He was trying to determine the order in which
the funding was appropriated.
Ms. Teshner answered that if the initial project on the
list was $20 million and only $10 million was available,
the division might only fund the design portion of the
project saving the remainder for the following year. She
thought Tim Merrick could provide further detail about how
the division had applied it in the past. She noted that the
division would attempt to keep the REAA Fund to fund the
REAAs and not to comingle funds.
2:05:07 PM
TIM MEARIG, FACILITIES MANAGER, DEPARTMENT OF EDUCATION AND
EARLY DEVELOPMENT, explained there was a provision in
regulation that allowed the department to fund a phase of a
project (if it could be phased) if there were not
sufficient funds for the entire project. Otherwise, the
department was permitted to fund further down the list.
Co-Chair Foster clarified that a school project could be
phased or skipped. He asked at what point the state would
move to the major maintenance list.
Mr. Mearig replied that the language in statute for using
the funding on the major maintenance list required that
priority would be given to school construction projects. He
surmised there was not a simple answer without looking at
the detail of the scenario. The division would develop
scenarios in conjunction with the districts being served at
the priority points on the list and at the department's
leadership.
Representative Josephson mentioned he had taught in an REAA
for 3 years. Shortly after he left, the George Morgan
Senior High School burned to the ground and was rebuilt. In
such a circumstance, he asked what priority would be given
to the community. He wondered how the situation would be
handled.
Mr. Mearig responded that the priority list was established
through a regular statutory process annually. If there were
emergencies that arose, such as the earthquake for the
previous year, they would likely be reflected on the list
if the districts chose to submit a project for funding. He
continued that a school that was completely unhoused would
receive a significant amount of points in the matrix. The
project would likely rise to the top of the priority list.
2:08:12 PM
Co-Chair Wilson OPENED Public Testimony.
2:08:23 PM
JIM ANDERSON, CHIEF FINANCE OFFICER, ANCHORAGE SCHOOL
DISTRICT (via teleconference), was in support of continued
school bond debt reimbursement for districts to the state.
In the past, municipalities and borough incurred school
bond debt in accordance with the state's contractual
agreement in place at the time the bonds were approved. The
agreements allowed the state to maintain education
facilities across the cities, boroughs, and local
communities. He spoke of the struggles of recession. He
urged the committee to continue supporting bond debt
reimbursement.
2:10:26 PM
BRYCE WARD, MAYOR, FAIRBANKS NORTH STAR BOROUGH, FAIRBANKS
(via teleconference), spoke in support of HB 106. The
ramification of not funding the school bond debt
reimbursement to the Fairbanks North Star Borough would
equal about $9 million, roughly a 1.1 mill increase for the
local tax base. He was speaking in favor of the extension
of the program to pay for current debt that was approved by
the borough's voting base with the assumption the state
would be contributing as part of the requirement for school
construction. The borough currently operated under a tax
cap. However, debt was exempt from the cap and the bill
would result in an increase to the tax base. The borough
was proposing a tax increase in its budget in the current
year.
Mr. Ward continued that the ability for the state to be
able to partner with communities at the local level was
significant. The 30 percent match that the local level was
paying contributed to the state's ability to continue to
provide school services. He reiterated his support for the
bill.
2:12:10 PM
CHEYENNE HEINDEL, MAT-SU BOROUGH, PALMER (via
teleconference), spoke in support of HB 106. She explained
that without the passage of the bill the borough would have
to impose an additional 2 mills on its tax payers. Also,
she mentioned that the borough was in need of additional
school facilities. She thanked members for their
consideration.
2:12:51 PM
LUCY NELSON, NORTHWEST ARCTIC BOROUGH, KOTZEBUE (via
teleconference), spoke in opposition of the bill. She
relayed that for FY 20 the Northwest Arctic Borough bond
debt balance was $40.9 million, none of which was
reimbursable by the State of Alaska if the FY 20 proposed
governor's budget was approved due to the moratorium.
Adding years would devastate the borough's finances. The
borough would be required to supplant the funding
previously committed to be paid by the state. Essential
borough services that protected the life, health, and
safety of its residents would have to be reduced or
eliminated. The State of Alaska was responsible for funding
schools having made a prior commitment to reimburse a
portion of school bond debt. Local governments had relied
on the state's commitment in good faith. Any change in the
state's commitment on school bond debt reimbursement posed
a significant financial burden on local communities.
Ms. Nelson continued that the borough understood the
state's fiscal shortfall and the need to balance the state
budget by placing the moratorium on bond debt. However, the
Northwest Arctic Borough was currently operating under a
PILT [Payments in lieu of taxes] agreement. At the time the
borough negotiated the PILT agreement there was no
discussion on the elimination of bond debt reimbursement
payments from the state. She clarified that any reduction
to the bond debt payment would devastate the borough which
was already suffering from high crime and the lack of basic
infrastructure.
Mr. Nelson reported that, unlike other rural communities,
the Northwest Arctic School District was not an REAA. The
borough contributed over $2 million per year towards the
bond repayments. Although the payments were large, the
borough was committed to education and its schools.
Eliminating the state reimbursement would cost the borough
$4 million in FY 20. She asked legislators to consider the
bill carefully as it moved forward. The borough had no new
revenue source to make up the huge reduction. The borough
had $14.3 million of bond debt reimburse payments pledged
by the state for its school construction projects. The
amount did not include the Kivalina school bond debt which
was $12.7 million. She asked the committee to pay the
authorized bond debt reimbursement for the agreed upon
timeline. The borough had no other choices available to
absorb such a huge reduction.
Co-Chair Wilson asked whether she understood that the bill
had nothing to do with bond reimbursement for the borough's
current bonds taken out prior to 2015.
Ms. Nelson responded in the affirmative.
Representative Josephson thought there was a good argument
that the world continued to advance and that the district
had increasing needs since 2015. His understanding was that
when the moratorium began the world was on notice that they
would be subject to taking care of their own bonds in full.
He asked if Ms. Nelson shared the same understanding.
Ms. Nelson asked Representative Josephson to restate his
question.
Representative Josephson thought there might be two sets of
arguments. First, prior to 2015 and subject to
appropriation there was an expectation that if things went
well, the state would help. However, after 2015 there
should not have been any expectation of help from the
state. He asked if he was correct.
Ms. Nelson offered that the borough felt that the state was
responsible for funding schools.
2:17:31 PM
AT EASE
2:18:00 PM
RECONVENED
Co-Chair Wilson reiterated that the bond debt reimbursement
in the operating budget that was under discussion was not
part of the bill. They were bonds taken out prior to 2015
and had a 70 percent state contribution and 30 percent
local contribution or a 60 percent state contribution and a
40 percent local contribution. All of the bonds were
contingent on an appropriation by the legislature. The
bonds prior to 2013 were not a part of the bill under
consideration. There had been confusion in the testimony.
Co-Chair Wilson clarified the purpose of the bill. For the
previous 5 years no municipality had been able to take out
a bond with the understanding that the state would pay.
They could put out bonds, but communities would be 100
percent responsible. The bill would extend the same
moratorium for 5 years from FY 20 to FY 25. It would have
no effect on the appropriation that might or might not
happen with the current debt from Alaska's school
districts.
2:19:15 PM
DR. ANNMARIE O'BRIEN, SUPERINTENDENT, NORTHWEST ARCTIC
SCHOOL DISTRICT, KOTZEBUE (via teleconference), called in
opposition to the bill. She reported that the Northwest
Arctic Borough was under a PILT agreement negotiated in
good faith with the Red Dog Mine with an understanding that
the moratorium would end in 2020. It would come in time for
the borough to support the Kivalina School and to bond for
the borough match for the school. She stressed that the
borough had no other place to turn to raise funds. The
borough felt very strongly about putting an end to the
moratorium. She added that the committee should make
considerations for boroughs receiving funding under PILT.
The Kivalina School was part of the Moore Settlement. The
borough had begun the process of working on the school
access. The development of the road to the school was
currently in process. The opening of the school was long-
overdue and had an expected opening date of 2021. However,
it was necessary to have the school bond debt reimbursement
in place to move forward with the project. She urged
members to reject the extension of the moratorium.
2:21:38 PM
NILS ANDREASSEN, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL
LEAGUE, thanked the chair for clarification on the purpose
of the bill. He spoke of the importance of school bond debt
reimbursement to local governments around the state. In
order for the Alaska Municipal League (AML) to approach the
bill effectively it was still working to determine
municipal impacts. He thought agreement needed to be
reached as to whether the state had an obligation to fund
the construction and/or maintenance of school facilities.
If the answer was yes, then the next question that needed
to be answered was to what extent. The Alaska Municipal
League believed that the constitution was clear that it was
the state's responsibility to establish and maintain a
system of public schools, which AML thought extended to the
construction of schools. Once his questions were answered,
better certainty for school districts and local governments
could be provided.
Mr. Andreassen continued that AML's fear was that extending
the moratorium would result in minimal investment in major
construction and maintenance as districts waited an
additional 5 years before being able to address current
concerns. The league was aware that deferred maintenance
was currently a challenge and extending the moratorium
might compound the challenge. It was not to say that some
municipalities might make different decisions. Clearly,
Fairbanks and others had worked to address current concerns
as best as they could. It did not mean that school
districts would not work with local governments to make
necessary investments. However, the questions about who was
responsible and to what extend needed to be answered.
Mr. Andreassen continued that it would fall to local tax
payers to determine whether tax increases at the local
level could and should be borne or sustained and whether
they could occur presently or whether local tax dollars
would be better leveraged against state investment in the
future. He asserted that it was clearly in the state's
interest to put some stronger guidelines around the program
including better control over its debt structure and to
ensure that the funding of school construction or
maintenance was consistent with available revenues. The
Alaska Municipal League would look forward to such a
conversation. He offered that where there might be changes
to the program, AML would like to be involved and would
like to see all parties at the table. He suggested working
next on an assessment of needs that had been delayed for
the previous 5 years, where there had been progress, and
what the potential impact of 5 more years might mean to
communities, school districts, and students.
2:25:06 PM
Representative Knopp noted Mr. Andreassen's comment about
the state aligning its debt with the ability to pay for it.
He thought it was exactly what the state was doing by
extending the moratorium. He asked Mr. Andreassen to
comment.
Mr. Andreassen responded that he thought 5 years was a long
period without knowing what the current needs looked like
at the local level in terms of school districts needing
construction funding or major maintenance conducted. He
suggested that it was not possible to match need to current
revenue without knowing what the needs were. Additionally,
he thought it would be wise to consider caps or different
matching amounts to shape the requests which would better
enable the state to structure the program relative to
current revenues.
Representative Knopp asked whether he thought it had been
made clear to voters that the bond reimbursement would be
subject to appropriations.
Mr. Andreassen replied that for prior committed school bond
debt reimbursement it varied by community in terms of the
public's understanding. He believed the public made the
commitments based on a 17-year history of the state
reimbursing school bond debt.
Co-Chair Wilson asked Mr. Andreassen's if he thought it was
fairer for the legislature to allow districts to bond
without looking at their ability to pay.
Mr. Andreassen replied that he would be better able to
evaluate the bill if a needs assessment was available
showing which districts currently needed major construction
or maintenance. He would then be able to evaluate it
against the local tax base ability to pay for or provide
match funding. He noted the Northwest Arctic Borough's PILT
agreement which was very different than other boroughs.
There were different tax bases and tax formats that local
governments applied to their ability to bond. He believed
that having a more nuanced view of what it looked like at
the local level would help everyone involved in
understanding what a moratorium might look like for local
residents.
Co-Chair Wilson thought the first question should be about
a municipality's ability to pay.
Mr. Andreassen responded in the affirmative. He thought it
went back to the earlier confusion about whether it
extended and paid the reimbursement or whether it was only
focused on the moratorium. If it extended the repayment of
current bond obligations, AML would support the bill. It
was whether the moratorium was extended and whether the
analysis was done.
Co-Chair Wilson reiterated that the bill had nothing to do
with paying what was currently owed. She brought the bill
forward because the state was having difficulty being able
to pay what the state presently owed. She opined that it
would be unfair to Alaskans to issue more bonds while the
state was currently not paying it. She was proud of her
school district and community that stepped up to the plate.
Representative Josephson was likely to support the bill.
However, he was sad that there had been a lack of resolve
since 2015 to put together a comprehensive fiscal plan. It
was something he had fought for. He noted voting for new
revenue. He thought the bill was warranted given the
circumstance in context.
2:30:25 PM
Co-Chair Wilson CLOSED Public Testimony.
Vice-Chair Ortiz agreed with the previous speaker regarding
supporting the bill. He wanted to be clear that by
extending the moratorium, the legislature was not extending
deferred maintenance needs or deferred construction needs.
He did not think the extension would help in the state's
ability to provide adequate education and facilities for
Alaska's children. He wanted to hear more from Mr. Mearig
about future deferred maintenance and school construction
projects that might not go forward if the legislature were
to extend the moratorium.
Co-Chair Wilson asked Mr. Mearig to respond to Vice-Chair
Ortiz's question.
Mr. Mearig asked for clarification.
Vice-Chair Ortiz asked Mr. Mearig if he was aware of any
deferred maintenance issues or new school construction
plans that might get put on hold if the state was to adopt
the moratorium.
Mr. Mearig reported that the state had a program for
identifying and collecting school capital needs. The
program was an annual opportunity for all districts to
submit their requirements to the state. A list for possible
FY 20 funding had been compiled and was available to the
public. Based on the list, there were plenty of needs from
districts around the state. There were many districts that
had not participated as well as they could have. There
might be other needs not expressed on the list. The only
district he had had active conversations with about the
reopening of debt had been the Mat-Su Borough School
District. They spoke about the timeline to introduce a $20
million to $25 million bond package. His advise to them was
to get on the list so that the division could see their
need. If there was an opportunity for the debt to be
reopened, the division would have a chance to work through
the eligibility review.
Representative LeBon asked whether the department had a
chance to weigh in on language presented to voters on a
bond issue when a community bonded for a new school
building.
Mr. Mearig responded that there was no longer a requirement
in statute to pre-approve voter language for debt service
for schools.
Representative LeBon mentioned that in his days on the
school board, members went to great lengths to educate
voters. Although the intention was for a 70/40 split, it
was not a guarantee. The board educated voters that the
possibility existed that the district might not receive a
70 percent state reimbursement. There was a risk in any
school bond debt program that the community might end up
having to service the debt.
2:36:42 PM
Vice-Chair Ortiz directed a question to Representative
LeBon. He suggested that if the state appeared to be an
unlikely participant in the bonding program, the bond rates
offered to communities might increase. He wondered if
communities would have to pay a higher rate for the bonds.
Representative LeBon thought there was a chance that the
rate of the bond would be slightly higher. However, they
were general obligation bonds which the community had to
stand behind, as the bonds carried the highest priority for
repayment.
Co-Chair Wilson added that when communities signed on the
bottom line, it was for 100 percent of the obligation,
whether or not the state contributed.
Representative Carpenter was struck that the state had a
$1.6 billion deficit and Alaska's economy was in recession.
He thought it was obvious the state could not support its
current spending level. The extension of the moratorium
would require entities to look elsewhere other than the
state which was not a bad thing while Alaska's economy was
struggling and could not afford its current spending.
HB 106 was HEARD and HELD in committee for further
consideration.
Co-Chair Wilson reviewed the agenda for the following day.
ADJOURNMENT
2:39:12 PM
The meeting was adjourned at 2:39 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB87 Sponsor Statement 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-FEDC Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-FNSB Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-City of Fairbanks Resolution 4869 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-GFCC Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-IGU Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| H-FIN_HB87 Presentation_3.28.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB106 ver A Sponsor Statement 3.26 (1).pdf |
HFIN 4/1/2019 1:30:00 PM SFIN 5/6/2019 9:00:00 AM |
HB 106 |
| HB106 ver A Back up info 3.26.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 106 |
| HB106 Fiscal Note 3.31.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 106 |
| HB 106 Unalaska FIA School Debt Reimbursement 4-1-2019.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 106 |