Legislature(2021 - 2022)ADAMS 519
03/09/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB69 || HB71 | |
| Presentation: Mental Health Trust Authority Fy 22 Budget and Reserves Summary | |
| Presentation: Aidea Fy 22 Budget, Reserve and Credit Summary | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 69 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 9, 2021
1:37 p.m.
1:37:02 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:37 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
None
ALSO PRESENT
Brodie Anderson, Staff, Representative Neal Foster
PRESENT VIA TELECONFERENCE
Chris Cooke, Chair, Board of Trustees, Alaska Mental Health
Trust Authority; Mike Abbott, Chief Executive Officer,
Alaska Mental Health Trust Authority; Alan Weitzner,
Executive Director, Alaska Industrial Development and
Export Authority, Department of Commerce, Community and
Economic Development.
SUMMARY
HB 69 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 69 was HEARD and HELD in committee for further
consideration.
HB 71 APPROP: MENTAL HEALTH BUDGET
HB 71 was HEARD and HELD in committee for further
consideration.
PRESENTATION: MENTAL HEALTH TRUST AUTHORITY FY 22 BUDGET
AND RESERVES SUMMARY
PRESENTATION: AIDEA FY 22 BUDGET, RESERVE AND CREDIT
SUMMARY
Co-Chair Foster reviewed the meeting agenda.
HOUSE BILL NO. 69
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making reappropriations; making
supplemental appropriations; making appropriations
under art. IX, sec. 17(c), Constitution of the State
of Alaska, from the constitutional budget reserve
fund; and providing for an effective date."
HOUSE BILL NO. 71
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; making
supplemental appropriations; and providing for an
effective date."
1:38:37 PM
Co-Chair Merrick MOVED to ADOPT the proposed committee
substitute for HB 69, Work Draft 32-GH1509\B (Marx,
2/23/21).
Co-Chair Foster OBJECTED for discussion.
BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER,
explained that the only change in Version B of the bill was
conforming the original governor's bill to the committee's
legal drafting manual and style used by Legislative Legal
Services.
Co-Chair Foster WITHDREW his OBJECTION.
There being NO further OBJECTION, Work Draft 32-GH1509\B
for HB 69 was ADOPTED.
1:40:14 PM
Co-Chair Merrick MOVED to ADOPT the proposed committee
substitute for HB 69, Work Draft 32-GH1509\I (Marx,
2/23/21).
Co-Chair Foster OBJECTED for discussion.
Mr. Anderson relayed that there was one substantive change
along with other technical changes between Versions B and I
of the bill. He detailed that the substantive change
involved distributing salary adjustments originally
included in the executive branch-wide appropriations in the
governor's bill to the individual departments and agencies.
He explained that the change aligned with the Office of
Management and Budget (OMB) reports.
Co-Chair Foster stated Mr. Anderson was looking at Version
I. He asked Mr. Anderson to share the location he was
referring to.
Mr. Anderson directed members' attention to a Legislative
Finance Division (LFD) document titled "2021 Legislature -
Operating Budget Agency Summary - Governor Structure" dated
4/3/21 (copy on file).
Vice-Chair Ortiz restated the document title for
verification.
Mr. Anderson agreed. He pointed to column 1, which
reflected Versions A and B of the bill. He drew attention
to the row titled "Executive Branch-wide Approps" in the
amount of $11.1 million (highlighted in yellow). He stated
the item reflected the governor's original bill Version A
converted to Version B. Column 2 reflected the structural
salary adjustment changes by allocating the $11.1 million
to the appropriate departments. Column 3 was reflective of
Version I of the bill. He highlighted that the executive
branch-wide appropriations total had changed to $0.0 in
column 3. He noted that between columns 1 and 2, the total
was $13.4 million reflected in column 3.
Co-Chair Foster observed that there were no changes to
dollar amounts. The only change was where the dollars were
directed.
Mr. Anderson replied in the affirmative.
Mr. Anderson continued to review the changes in Version I
of the bill. He detailed that the technical changes in
Version I of the bill corrected an appropriation order
requested by OMB. There were some inadvertent changes that
occurred during OMB's development and OMB had requested the
committee change the language back to the previous year's
budget structure. The information was reflected in a
document labeled at the bottom as Legislative Finance
Division by request of Office of Management and Budget
dated 3/8/21 [titled "HB 69 OMB Requested Structure
Differences"](copy on file). The first column showed the
departments and divisions, and the second column included
the previous FY 21 appropriation in order of appearance in
the bill. He relayed that when the administration first
rolled out the FY 22 budget it had moved the divisions into
a new location. He explained that OMB had subsequently
asked LFD to revert back to the previous order in the FY 21
and historical structure.
1:44:50 PM
Representative Carpenter looked at the operating budget
agency summary and observed that all of the numbers
appeared to be the same with the exception of the
Department of Health and Social Services (DHSS). He asked
why there appeared to be an addition for DHSS with the
salary adjustments.
Mr. Anderson answered that in Version I, there were two
rows that included totals outside of the executive branch-
wide appropriations, including DHSS in the amount of $1.6
million and Judiciary in the amount of $597,000. He
explained that the larger numbers reflected in column 3
[for each of the aforementioned departments] included the
amounts in column 1 in addition to the distributed amounts
shown in column 2. He deferred to OMB for further
explanation.
Representative Carpenter asked for verification that the
$2.3 million for DHSS in column 2 was included in the $11.1
million.
Mr. Anderson replied in the affirmative.
Representative Rasmussen asked which pages in the bill
reflected the changes listed in the operating budget agency
summary.
Mr. Anderson responded that he would follow up with the
information.
1:47:04 PM
Co-Chair Foster WITHDREW his OBJECTION.
There being NO further OBJECTION, Work Draft 32-GH1509\I
for HB 69 was ADOPTED.
1:47:28 PM
Co-Chair Merrick MOVED to ADOPT the proposed committee
substitute for HB 71, Work Draft 32-GH1508\B (Marx,
2/23/21).
Co-Chair Foster OBJECTED for discussion.
Mr. Anderson relayed that the only change in version B of
HB 71 was conforming the governor's original bill to the
legislative legal drafting manual and style.
Co-Chair Foster asked if there were numerous small
conforming changes or a handful of substantive changes.
Mr. Anderson answered that there were changes on most pages
of the legislation, but they were small and technical and
did not include anything substantive.
Co-Chair Foster WITHDREW his OBJECTION.
There being NO further OBJECTION, Work Draft 32-GH1508\B
for HB 71 was ADOPTED.
1:49:20 PM
Co-Chair Merrick MOVED to ADOPT the proposed committee
substitute for HB 71, Work Draft 32-GH1508\I (Marx,
2/23/21).
Co-Chair Foster OBJECTED for discussion.
Mr. Anderson relayed there was only one substantive change
between Versions B and I of HB 71. He explained the change
related to distributing the salary adjustments specific to
the mental health budget. He directed attention to page 2,
lines 12 through 14 of Version I. He referenced the totals
shown in black and the corresponding numbers underneath
reflecting agency totals for the Department of
Administration's legal and advocacy services. He detailed
that compared to Version B, the totals were different.
There were no structural changes to the bill. The purpose
was to conform to OMB's reports that reflected the salary
adjustments.
Representative Josephson asked for verification that the
changes did not include the governor's amendments.
Mr. Anderson replied in the affirmative. He elaborated that
subcommittees were in the process of addressing the
governor's amendments that had been issued on [February]
15.
Representative Josephson asked for verification that
subcommittees would address amendments but not supplemental
items.
Mr. Anderson agreed. He added that supplemental items fell
under the House Finance Committee's purview via the
supplemental bill.
Co-Chair Foster WITHDREW his OBJECTION.
There being NO OBJECTION, Work Draft 32-GH1508\I for HB 71
was ADOPTED.
HB 69 was HEARD and HELD in committee for further
consideration.
HB 71 was HEARD and HELD in committee for further
consideration.
^PRESENTATION: MENTAL HEALTH TRUST AUTHORITY FY 22 BUDGET
AND RESERVES SUMMARY
1:52:48 PM
Co-Chair Foster asked members to hold questions until the
end of the presentation.
CHRIS COOKE, CHAIR, BOARD OF TRUSTEES, ALASKA MENTAL HEALTH
TRUST AUTHORITY (via teleconference), introduced himself
and the Alaska Mental Health Trust Authority (AMHTA)
trustees. He provided a PowerPoint presentation titled
"Trust: Alaska Mental Health Trust Authority: House Finance
Committee," dated March 9, 2021 (copy on file). He shared
that the AMHTA's purpose was to administer the Alaska
Mental Health Trust, a perpetual trust aimed at improving
the lives of its beneficiaries. He noted that beneficiaries
were identified in AMHTA's enabling legislation. He shared
that the corpus of the trust consisted of money and land,
specifically the Mental Health Trust Fund, held by and
managed by the Alaska Permanent Fund Corporation (APFC).
The trust's land consisted of close to 1 million acres of
Alaska land, managed by the Trust Land Office under the
supervision of the Department of Natural Resources (DNR).
Mr. Cooke elaborated that from the resources the trust drew
annual income on a sustained basis in a manner provided by
its asset management policy to provide for the needs of
beneficiaries pursuant to Alaska's comprehensive mental
health program plan. The trust had a role as a funder of
programs to improve the lives of beneficiaries. He reported
that the previous year, the trust had granted more than $21
million to its partners helping to fund community-based
projects and initiatives, including significant trust
income that went to state departments to assist statewide
programs and accomplish system change efforts statewide.
Additionally, the trust had a program for mini-grants to
individuals to help improve quality of life, independence,
and opportunity for beneficiaries. The trust was thankful
for its statewide network of grantees and partners who lent
their expertise and efforts to improving outcomes for trust
beneficiaries.
Mr. Cooke stated that in addition to providing funds to
nonprofit agencies, local communities, state entities, and
individual beneficiaries, the trust provided leadership in
matters of advocacy planning and implementing of the
comprehensive integrative mental health program plan for
beneficiaries. The trust had supported many system-change
efforts including reforms as to how the state's Medicaid
program funded behavioral health and addiction services.
Most currently, efforts were under development to ensure
Alaskans experiencing a psychiatric crisis would have
access to the right kind of services, at the right time, in
the right place.
1:58:33 PM
Mr. Cooke stated that thanks to the leadership of the AMHTA
board (all board members were long-term Alaskans and served
voluntarily) and staff, the trust remained in a healthy
financial position bolstered by strong performance in
financial markets and in the lands and resources managed by
the trust. The trust endeavored to develop its lands and
resources to benefit its beneficiaries and to see that the
resources were productively used in Alaska. He explained
that the strong position allowed the trust to advance
beneficiary priorities and balance the needs of current and
future beneficiaries. He was proud of the work the staff
had done over the past year during the COVID-19 pandemic
and in supporting the trust's partners by carefully
managing its assets and providing valuable help and support
to beneficiaries. He thanked the committee for the
opportunity to testify. He relayed that the trust's CEO
Mike Abbott would provide additional detail. He shared that
Mr. Abbott had been with AMHTA for several years and board
members had seen dramatic improvement in the operations of
the trust and its programs.
2:00:58 PM
MIKE ABBOTT, CHIEF EXECUTIVE OFFICER, ALASKA MENTAL HEALTH
TRUST AUTHORITY (via teleconference), turned to slide 3 and
detailed that the trust existed to serve Alaskans in five
basic categories including individuals with mental
illnesses, intellectual and/or developmental disabilities,
Alzheimer's disease and related dementia, traumatic brain
injuries, and substance use disorders. He relayed that the
trust did not keep a list of Alaskans it considered
beneficiaries. He elaborated that with the use of
population density assumptions (nationally and within
Alaska), the trust believed one in seven to one in ten
Alaskans would be eligible for AMHTA supports. He estimated
the number to fall between 70,000 and 110,000 Alaskans. He
underscored the amount was a significant subset of the
state's population.
Mr. Abbott discussed the trust's financial position on
slide 4. He relayed that the trust had taken a number of
steps to enhance its financial position since its inception
in the mid-1990s. The chart on slide 4 showed steady growth
as a result of two basic factors. First, the income derived
from trust lands that had been invested and had grown the
trust's invested assets. Second, the success of investment
managers within APFC and the Department of Revenue (DOR)
had allowed the trust to withdraw funds in the form of a
percent of market value (POMV) style payout, while
continuing to see appreciable growth in the total asset
base. He highlighted that AMHTA was a perpetual trust; its
work was to support current and future beneficiaries.
2:03:15 PM
Mr. Abbott provided a quick snapshot of FY 22 funding on
slide 5. The trust derived its income from four basic types
of activities (shown on the left side of the slide)
totaling $34 million in FY 22. The total reflected an
increase of approximately 3 percent in revenues over the
prior year. The right side of the slide showed that AMHTA
revenues had grown between 2 and 5 percent annually, which
was expected to continue in the future. He reported that
income or earnings from invested assets (the trust's POMV)
made up the majority of its revenues in any given year.
Additionally, there were prior year funds carried forward
and income from land management activity. The funding
comprised the $34 million it expected to spend in FY 22.
Mr. Abbott turned to the budget development process AMHTA
used annually to plan for the allocation of trust assets
and the recommendations the trust made to the
administration and legislature for the application of
general funds (slide 6). He believed the trust was unique
in having the statutory opportunity and responsibility to
make recommendations to the administration and the
legislature and for the administration and legislature to
support the recommendations or explain why they chose not
to support the recommendations. He shared that the trust
took the unique opportunity seriously and tried to use it
judiciously.
Mr. Abbott continued to address the budgeting development
process, which involved significant engagement with AMHTA
stakeholders. He elaborated that the budget process
culminated every summer and led AMHTA to submit a proposed
trust budget with its recommendations for General Fund (GF)
spending to the administration by the middle of September,
which informed the governor's proposed budget [released] a
few months later. He believed the trust's budget process
finished earlier in order for the administration to have
the benefit of the input in the development of its budget.
2:06:28 PM
Mr. Abbott moved to slide 7 showing a pie chart depicting
the allocation of FY 22 spending. The orange and yellow
portions of the chart accounted for approximately one-
quarter of the total trust spend and included agency
budgets for the Trust Authority and Trust Land Office,
respectively. The two segments included a combination of
operational and administrative spending. The Trust
Authority was housed within DOR and the Trust Land Office
was housed within DNR. The green segment reflected Mental
Health Trust Authority Authorized Receipts (MHTAAR)
accounting for one-quarter of AMHTA spending. He detailed
that MHTAAR was the authorized receipt authority for state
agencies to receive trust funds for trust purposes. He
elaborated that typically between $8 million and $12
million in trust funds went to fund state agency efforts.
The trust's proposed FY 22 budget included $8 million in
MHTAAR funds in several dozen different allocations, which
were all included in the governor's proposed budget.
Mr. Abbott continued to review FY 22 spending on slide 7.
The largest segment of the slide reflected authority grants
shown in blue. The category was comprised of grants the
trust made to external agencies including nonprofits,
tribes, local governments, and other community
organizations. The allocations were made unilaterally by
the trust and the spending did not go through the
legislative process. He noted that agency budgets and
MHTAAR funds required legislative concurrence and were
primarily incorporated in the mental health budget, but
also in the capital and operating budgets.
2:09:00 PM
Mr. Abbott advanced to a comparison of elements in the
trust's FY 22 budget with the governor's proposed budget on
slide 8. He pointed out that the slide only contained
allocations where there was a difference between the
trust's recommendation and the governor's proposed budget.
The three blue columns on the left of the table reflected
the trustee approved budget. The middle blue column titled
"GF/MH" included the trust's recommendations for GF
spending. He pointed to the yellow column on the right side
of the table and highlighted that with one exception, the
governor did not accept any of the trust's recommendations
for GF spending. Alternatively, the governor proposed the
appropriation of trust reserves for each of the line items.
Mr. Abbott highlighted that the governor's budget also
allocated $6 million in AMHTA reserves to fill a shortfall
in the Alaska Psychiatric Institute (API) budget. He noted
that an additional $6 million shortfall was included in the
governor's supplemental budget. He reported that the
proposal was a significant break from precedent; there had
never been an administrative proposal or legislative action
that would directly appropriate from trust assets. He
shared that in a recent letter the AMHTA board had sent to
the House Finance Committee, it had described a number of
its specific concerns with the approach. He shared the two
primary concerns. He explained that the use of trust
reserves in the governor's proposal was essentially an
overdraw from trust assets and would either require the
trust to overdraw its assets or reduce trust spending in
other areas. Additionally, the Department of Law (DOL) had
advised the trust that the approach directly violated the
expectations spelled out in the settlement of the
litigation that resulted in the formation of the trust and
would likely be a breach of the state's trust
responsibilities. He relayed that additional detail was
included in the trust's letter to the committee. He noted
there was a bit more information further along in the
presentation related to the reserves, which would provide
additional context for the concern.
2:12:46 PM
Mr. Abbott addressed the work of the trust on slide 9. He
detailed that the trust's work was generally divided
amongst four focus areas and a couple of additional
priority areas. The established focus areas were similar to
its focus in the past several years. He reported that the
focus areas supported all of the trust's beneficiaries and
were working in all areas of the state.
Mr. Abbott moved to slide 10 and reviewed trust grant
impacts. He reported that some of the significant grant
contributions in the past 12 to 18 months were in grants to
expand substance use treatment capacity in Alaska,
including $300,000 to Akeela Inc to expand residential
treatment in Anchorage; $125,000 to SeaView Community
Services Recovery Housing Program in Seward; and $300,000
to Set Free Alaska's new residential treatment facility in
Homer. Additionally, the trust had engaged in significant
investments to prevent and end homelessness around the
state including Bethel, Anchorage, and Juneau.
Mr. Abbott highlighted the trust's longstanding commitment
to expand and reform Medicaid. He detailed that the
Medicaid expansion and reform work that began five to six
years earlier was largely funded by the trust. He
elaborated that the trust had made a $10 million commitment
to the state, which was expended over 4.5 years, which led
to the expansion of Medicaid services and the Medicaid
reform efforts, including the development of the Medicaid
Behavioral Health Waiver (the 1115 waiver). He explained
that the waiver had expanded the behavioral health services
fundable through Medicaid. As a result of Medicaid
expansion and reform, the state had increased the served
population by 70,000 without increasing any additional
state GF contributions. He relayed that a significant
percentage of the base Medicaid served population as well
as the expansion population were trust beneficiaries. He
detailed that through Medicaid, beneficiaries often
received the only services available to them. The trust
continued to work with DHSS to increase the utilization of
1115 services and to increase providers' access to the
systems, which would expand services to beneficiaries and
other Alaskans.
2:16:56 PM
Mr. Abbott moved to slide 11 and discussed COVID-19
response grants. He relayed that about one year back the
trust recognized the pandemic was having a significant
impact on providers serving trust beneficiaries and as a
result, it had reallocated funds in its FY 20 and FY 21
budgets to for approximately $1.5 million in the form of
grants to organizations permanently serving trust
beneficiaries. The trust had been able to get relatively
small increments of $25,000 or less out the door in several
weeks to more than 70 providers around the state. The money
typically arrived at the agencies before some of the other
PPP [Paycheck Protection Plan] or Coronavirus Aid, Relief,
and Economic Security (CARES) Act funding had arrived. He
elaborated that the grants were often used as bridge
funding for PPE [personal protective equipment] and/or for
improvements in telehealth related technology and training,
so that those operations were not obligated or forced to
close their doors or reduce their service.
2:18:40 PM
Mr. Abbott addressed the trust's recent initiative to
improve Alaska's psychiatric crisis care (on slide 12). He
stated that currently a person could reasonably expect
throughout most of Alaska that if they had a medical issue
or physical health issue (e.g., a heart attack or broken
leg) that the available emergency services would be fit for
purpose. He elaborated the services had properly trained
medical personnel with access to systems that would address
the patient's emergency needs. He clarified that it was not
the case for a behavioral health crisis. He elaborated that
like most places around the country, Alaska did not do a
good job of providing psychiatric crisis care.
Mr. Abbott communicated that AMHTA was committed to
improving the situation. He expounded that the trust was
working to bring in systems that had been proven to work in
other parts of the country, scaled to the size of Alaska's
communities and to working with local agencies and
providers to create emergency response capability for
individuals dealing with mental health issues. He was
pleased to say that the trust's work in larger communities
and in rural Alaska was well underway. The trust expected
to invest upwards of $10 million in the effort over the
next several years in order to bring the programs online.
He reported that long-term funding for most of the work
would likely be available through Medicaid services as
described in the behavioral health waiver. The trust saw
its role as a start-up funder, as an agency that could
provide funds to help improve systems to experiment with
new service types and service delivery methods and to
transition the services, when successful, to sustainable
funding streams. He stated that Medicaid was a good
example. The trust fully expected that psychiatric crisis
care would be [a successful] example the state would be
able to look back on after several years.
2:21:31 PM
Mr. Abbott spoke about the Trust Land Office on slide 13.
He relayed that the activity of the Trust Land Office in
managing the almost 1 million acres of trust lands had been
very successful in the long-term and in recent years. The
slide provided a breakdown of the income the trust expected
in FY 21. He informed the committee that the anticipated
revenue was a significantly larger amount for FY 21 than
was typical. He pointed to the land category near the
bottom of the chart and stated that $22 million was
significantly more than the trust typically expected. He
detailed that the FY 21 income included the sale of the
trust's subport parcel in Juneau. He elaborated that the
approximately 2.5 acre parcel was sold to Norwegian Cruise
Lines a little over one year back for $20 million. He
explained that the revenue had cleared the trust's account
in the current fiscal year. He noted were not many other
$20 million land parcels in the trust's portfolio.
Mr. Abbott continued to review slide 13. He relayed that
AMHTA had work in every resource category in the state and
was actively managing the trust lands in order to generate
income, which was its primary land management objective. He
stated that the Trust Land Office did a great job with the
objective.
2:23:51 PM
Mr. Abbott addressed trust reserves on slide 14. He
informed the committee that the trust maintained reserves
in order to create a buffer to allow for trust spending in
years where its investments did not meet performance
expectations. The reserves enabled the trust to have
meaningful programmatic spending even in years where its
investment earnings were insufficient to fund its work. He
relayed that the reserves and policies the trust used to
manage them was described in the Trust Asset Management
Policy Statement. He explained the document and reserves
policy had been developed with the advice of Callan (the
same advisor who worked for APFC and many other state
funds). The trust's assets were managed by APFC and DOR. He
stated that both agencies did a great job on the trust's
behalf and through their work, the trust was able to
increase its annual spending. The reserves were managed
along with the trust's corpus to generate investment
earnings. He explained that the reserves helped build the
POMV yield annually, just like the corpus did.
Mr. Abbott stated that in 9 of the last 24 years AMHTA
would not have met its spending expectations if it did not
have reserves, managed its funds on a year-to-year basis,
and spent what its investments earned within that year. In
five of the years, the trust would have had negative
earnings and substantially less spending available for
beneficiaries. He noted that the reality heightened the
importance of the reserves. He likened the trust's reserves
and corpus to the Permanent Fund. He believed the Permanent
Fund and the trust funds were essentially the only two
funds managed with a distinction between their earnings and
their corpus. He explained that most of the other state
funds were managed like endowments whereby the earnings and
corpus were a single unit. The only way the trust fund grew
was when the trust deposited funds as a result of land
management activity or a trustee decision to transfer funds
for inflation proofing. He detailed that the trust valued
its reserves and relied on them to allow for a smooth and
efficient process for building revenues for its
beneficiaries.
2:27:35 PM
Mr. Abbott looked at the volatility the trust reserves
experienced on slide 15. He explained that because, like
the Permanent Fund, only the trust's reserves moved up and
down with earnings, there was significant volatility even
within short periods of time. He pointed to a chart on
slide 15 and noted that 18 months earlier, the reserves had
dipped below their target line. Since that time, the
reserves had appreciated dramatically and grown
significantly. He relayed that the target line had been
established based on a recommendation from Callan, as
equaling 400 percent of the trust's annual payout. He
elaborated that the FY 21 annual payout was almost $25
million, as a result 400 percent was slightly less than
$100 million. He highlighted that the trust's FY 20 year-
end balance was $160 million. The trust expected to end FY
21 with approximately $175 million to $225 million as a
result of strong investment performance during FY 21.
Currently, the balance was at the upper end of the range;
if the balance was sustained through the end of the fiscal
year, it would be the year-end position.
2:29:46 PM
Mr. Abbott continued to discuss trust reserves on slide 16.
He relayed that when reserves exceeded the target amount,
the asset management policy statement obliged the trust to
consider inflation-proofing the corpus. He noted it was
also described as one of the statutory opportunities for
the trust. He explained it was a process that had not taken
place for several years but was currently taking place. He
added that after the presentation had been submitted to the
committee the previous week, the AMHTA finance committee
had met and recommended to the full board a transfer of
$120 million from reserves into the corpus to satisfy the
outstanding inflation proofing liability. He detailed that
because the trust had not performed inflation proofing for
several years, the liability had grown to the $120 million
level.
Mr. Abbott returned to a chart slide 4 showing the trust
invested assets. He pointed to the bar on the right for FY
20 and highlighted that the blue portion of the bar
represented the corpus and the orange represented reserves.
He explained that if the trustee's endorsed the AMHTA
finance committee's recommendation, the orange bar would
decrease roughly by half and the blue bar would increase.
The total height of the bar would remain the same. He
detailed that the transfer would not impact earning
potential because all of the funding was currently managed
for the same yield. He explained that placing the funds in
the trust corpus would ensure the assets would be available
for future use by beneficiaries.
Co-Chair Foster thanked the presenters.
2:32:41 PM
Representative Josephson thanked the presenters for their
presentation. He understood that the concept of a set-aside
of lands for mental health needs dated back to the 1950s.
He asked for verification the state had inherited a moral
obligation on behalf of the federal government's
responsibility during the territorial years.
Mr. Abbott answered that prior to statehood, the federal
government had established AMHTA, dedicated 1 million
acres, and determined that revenue from the land would be
designed to fund work and services for trust beneficiaries.
He relayed that at statehood the obligation to manage the
trust was transferred to the Alaska Legislature. He
explained that it had led to litigation in the 1980s where
trust beneficiaries had sued the state suggesting that the
trust was being mismanaged. The litigation had settled in
1994 and the settlement established the trust's current
structure.
Representative Josephson asked for verification that the
federal government had passed the baton to the state and
the state had a trust responsibility of its own relative to
"this institution."
Mr. Abbott agreed.
Representative Josephson believed that if the state had a
trust responsibility it should defer to the wise management
of AMHTA. He considered it to be the nature of a trust
responsibility. He asked if Mr. Abbott agreed with the
statements.
Mr. Abbott agreed. Effectively, in 1994, with the
concurrence of trust beneficiaries, the trust had delegated
the responsibility for the day-to-day management to the
trust authority, including the responsibility for the lands
and funds making up the trust.
2:36:01 PM
Representative Josephson referenced a series of obligations
to respect the concept created by the federal government
and the institution created by settlement and law. He
believed there was an obligation of deference. He asked if
the state had ever reached into the trust reserves because
it wanted to.
Mr. Abbott answered in the negative.
Representative Josephson stated there were three sums at
issue [in the governor's proposed budget] including $6
million for FY 22 the governor wanted to spend from trust
assets, $6 million in the [FY 21] supplemental for
underfunding of API, and a smaller sum for mental health
from AMHTA recommendations. He remarked that typically the
items would not be fully funded with trust reserves.
Otherwise, he surmised they would not be called
recommendations and the trust would add them to its own
list of funded programs. He asked for comment.
2:37:45 PM
Mr. Abbott agreed. He relayed that in the budget detail
provided by the administration, there was a stated intent
to draw further from trust reserves in future years.
Representative Josephson surmised the administration was
indicating that AMHTA should get used to the idea of the
draws.
Mr. Abbott replied that it was the way the trust was
hearing it.
Representative Carpenter asked about the $3.5 million in
lapsed funds from the FY 21 budget. He asked why the funds
had lapsed and where they were currently located.
Mr. Abbott replied that typically out of the trust's $30
million or so, between 5 and 12 percent of funds were not
expended in a year allocated based on a variety of reasons.
He reported that AMHTA was working hard to reduce the
number. He highlighted some of the reasons the issue
occurred. He explained that sometimes a state agency did
not fully expend the authority given by the trust, the
trust may underspend its budget, or grants may not be made
in the anticipated manner. He elaborated that the lapsed
funds stayed within trust control inside its operating
account. The operating account was used to fund day-to-day
operations and grant making.
Representative Carpenter asked for verification that the
intent was to roll the lapsed funds into the FY 22 budget
instead of putting them somewhere else such as reserves or
fulfilling a requirement.
Mr. Abbott answered in the affirmative. He added that the
amount varied from year-to-year. He noted it had been the
trust practice for several decades.
2:40:34 PM
Representative LeBon referred to slide 8 showing the
governor's proposed budget and the trust recommendation
comparison. He remarked that the numbers did not add up. He
observed that the trustee approved budget was approximately
$24 million, while the governor's proposed budget was about
$21 million. He looked at the various columns on the slide
to reconcile the difference and referenced the governor's
increase of $6 million for an increase to client services
at API. Additionally, there was a reduction to AHFC for
special needs housing and housing assistance. He believed
the difference between the two budgets was not $6 million,
but about $3 million. He asked for the accuracy of his
statement.
Mr. Abbott replied in the negative. He clarified that the
list on slide 8 only reflected projects where there was a
difference between the governor's proposal and the trust
recommendations. He clarified that the MHTAAR columns were
the only trust funds on the slide. The GF/MH columns
referred to recommendations the trust made for General Fund
spending and the same was true for AHFC. The trust
typically made recommendations for the use of AHFC
programmatic work as well. He explained that the blue
columns [reflecting the trustee approved budget] and the
yellow and gold columns [reflecting the governor's proposed
budget] were not designed to be comparable.
Representative LeBon asked for verification that in the
current presentation, AHFC was providing the funding for
special needs housing and housing assistance.
Mr. Abbott answered that AHFC was providing substantial
funding, along with some AMHTA funding.
Representative LeBon referenced the [governor's proposed]
increment of $6 million to support client services at API.
He asked whose client services were being supported under
the proposal. Additionally, he asked if AMHTA and API
shared many of the same clients.
Mr. Abbott responded that the increment identified as
supporting client services was in the governor's proposed
budget. He believed it was generally how API's operating
work was described, which included most of the agency's
budget. He explained that the governor was not recommending
AMHTA fully fund API, there were still substantial GF and
other funding streams supporting API. He highlighted there
was one specific funding stream anticipated for FY 21 and
FY 22 that would not materialize. Consequently, rather than
backfilling with GF, the administration had proposed using
AMHTA funds. He confirmed that many to most of the clients
served at API would be considered trust beneficiaries.
2:44:55 PM
Representative Wool looked at slide 8 and stated his
understanding that the trust was managed by APFC and was
set up very similar to the Permanent Fund with an earnings
reserve and POMV draw. He remarked that the trust had not
ever exceeded the POMV draw. He elaborated that the
governor's proposal was to pull $10.2 million out of the
trust reserves. He observed that the situation was similar
to the issue facing the legislature where the governor had
proposed overdrawing the 5 percent POMV draw from the
Permanent Fund Earnings Reserve Account. He noted that the
trust's draw was lower than 5 percent. He thought Mr.
Abbott had referenced a legal opinion the trust had
obtained regarding the overdraw. He asked for detail.
Mr. Abbott answered that the effect of enacting the
governor's proposed [FY 21] supplemental and FY 22 budget
would be to draw an additional $16 million from the trust,
which was over and above the established POMV. He stated
that instead of the established draw of 4.25 percent, the
governor's proposal would draw between 7 and 8 percent. He
relayed the governor's proposed draw was not sustainable
for AMHTA. He elaborated that if the action were to be
taken, which was not the trust's recommendation, the trust
would likely have to reevaluate the rest of its spending
and make sufficient reductions in order to avoid
overdrawing its funds to the extent that would otherwise be
required.
Mr. Abbott addressed Representative Wool's question about
legal guidance. He detailed that AMHTA's primary counsel
was DOL. He elaborated that DOL had advised the trust
regarding the impact of the proposed action on the state's
trust responsibilities. He elucidated that the trust had
not been given a chance to consider the [governor's]
spending recommendations through its budgeting process. He
did not know that the trust would have endorsed the
proposal; however, it worked closely with state agencies on
its budgeting work year-round. He explained that all of the
MHTAAR increments on slide 8 and others not included on the
slide because there was no deviation between the governor's
proposal and the trustee approved budget, were all worked
out during the trust's annual budgeting process typically
in June through August. He informed the committee that
AMHTA did not learn about the proposal to use trust funds
for API or any other purposes until the budget had been
released in December. The trust did not get the chance to
evaluate or coordinate with the administration on the
proposals.
2:49:08 PM
Representative Wool noted that DOL advised AMHTA and also
worked for the governor. He stated his understanding that
DOL had told the trust the overdraw of $16 million would
break the trust's law. He noted that under the governor's
proposal the POMV draw would reach 7 to 8 percent. He
understood that if the draw was approved, the trust would
have to subtract the $16 million from other items it
normally spent on.
Mr. Abbott replied that Representative Wool's statements
were generally accurate. He did not want to speak for DOL.
He referred to the letter sent to the committee, which he
had signed and DOL had helped to prepare. He believed some
or all of the spending proposed by the governor would have
to be offset by commensurate reductions in the trust
proposed spending.
Representative Johnson asked for verification that the
proposed use of funds in the governor's budget had been a
surprise to the trust and there had not been any
collaboration with the trust on the $6 million and other
changes to the budget. She asked if it was uncommon to see
a new proposal in the governor's budget.
Mr. Abbot confirmed that the proposal was a surprise and
that it was uncommon.
Representative Johnson referenced slide 11 related to
COVID-19 response grants. She stated the slide showed the
trust received $1.5 million in COVID response grants. She
asked if there was more funding available or if the trust
received as much as it could through available COVID
grants. She wanted to give the governor the benefit of the
doubt in thinking that some of his proposed DHSS funds may
be able to be recovered or matched by federal funds. She
asked if Mr. Abbott could foresee any additional federal
funding in the future that may be helpful.
2:52:45 PM
Mr. Abbott answered that the trust was not currently
proposing additional COVID funding from trust assets. He
explained that the trust's goal in April had been to get a
little bit of money out the door as soon as possible to
provide early funding for agencies that were ultimately
supported through a variety of other state and federal
programs (e.g., PPP, CARES Act funding, etcetera). He
elaborated that the state had run an excellent program that
supported a number of nonprofits and other providers. He
shared that the state had sought the participation of
numerous other funders in the work, which the trust had
participated in. He believed it had worked well for the
state and recipients. He explained that if beneficiary-
serving programs did not get their needs met through
federal programming, the trust would definitely contemplate
stepping back into the role. The trust was working closely
with provider networks and individual providers to see that
needs were addressed.
Representative Johnson appreciated the response.
Mr. Abbott thanked the committee for its interest in AMHTA
and its purpose. He appreciated the consideration.
2:54:55 PM
AT EASE
3:00:35 PM
RECONVENED
^PRESENTATION: AIDEA FY 22 BUDGET, RESERVE AND CREDIT
SUMMARY
3:00:39 PM
ALAN WEITZNER, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference),
addressed a PowerPoint presentation titled "AIDEA Overview,
Budget Reserve + Credit Summary: House Finance Committee,"
dated March 9, 2021 (copy on file). He planned to provide
abbreviated comments on the majority of the slides and
would stick to some of the more important slides for
discussion. He referenced a letter from Alaska Industrial
Development and Export Authority (AIDEA) addressed to the
legislature dated January 8, 2021 including a review of
Alaska Industrial Development and Export Authority's
(AIDEA) FY 20 assets. The letter was provided annually to
the legislature pursuant to AS 44.88.205. He detailed that
AIDEA was created by the legislature as a public
corporation. The authority was a political subdivision
within the Department of Commerce, Community and Economic
Development (DCCED) with a separate legal existence.
Mr. Weitzner elaborated that AIDEA was managed by an
independent board composed of seven members nominated by
the governor (five from the private sector and two
delegated by the commissioners of DCCED and the Department
of Revenue). The authority had been investing in Alaska
since its establishment in 1967 and it operated as the
state's development finance authority. The authority had
initially been created to issue and finance conduit revenue
bonds and had grown to incorporate a broad range directly
investing in Alaska. The agency was self-sustaining and did
not draw upon the General Fund. He elaborated that the
agency used its returns to meet its operating costs and to
reinvest in projects in Alaska.
Mr. Weitzner relayed that AIDEA had reported positive
statutory net income and declared dividends to the state
since 1995. The agency had declared dividends totaling
$439.7 million to date to the state's General Fund through
the dividend statute. Overall, with AIDEA's bonds and loan
programs, the agency had directed over $3 billion into the
state for economic development purposes. He noted that the
$440 million dividends to the state was beyond the agency's
initial capitalization received from the legislature and
through designated programs at the Department of Revenue
(DOR) in the 1980s. The agency had grown its balance sheet
from a very small base to the $1.6 billion he would address
in the presentation.
3:04:22 PM
Mr. Weitzner spoke to AIDEA's statute 44.88 on slide 3. He
stated that AIDEA's purpose was to increase private
investment within Alaska. The agency had been established
to issue taxable and tax exempt bonds to acquire ownership
interest in projects and to provide development project
financing. He highlighted that the statute identified it
was in the state's interest to import private capital to
create new economic activity. He stated that AIDEA filled
its mission for economic development within Alaska by
working primarily with the private sector for investment.
3:05:15 PM
Mr. Weitzner turned to slide 4 and reviewed AIDEA programs
and projects as of FY 20. He noted that the projects worked
in concert with the letter provided to the legislature
dated January 8. He noted that the letter provided much
more detail about programs and individual projects. He
highlighted the impact of the COVID-19 pandemic. He
elaborated that AIDEA initiated emergency programs through
its board to address the pandemic and its economic impact
on Alaska's businesses. He reported that AIDEA had been at
the forefront of the state's response to the pandemic
beginning with Governor Mike Dunleavy's state of emergency
issued on March 11, 2020. The board had implemented
emergency regulations and programs, one of which was
adapted into the AK CARES program with DCCED. The agency
had provided close to $282 million in grant funding to
slightly over 5,500 small businesses throughout Alaska.
Mr. Weitzner continued to review slide 4. He shared that
AIDEA had adapted its business export assistance program to
provide guarantees to Alaska's banks and credit unions for
extending credit to existing borrowers.
Mr. Weitzner moved to slide 5 and discussed AIDEA programs.
He stated that the emergency programs included the impact
seen across all of the programs. He highlighted that the
$461 million loan participation portfolio had been impacted
by requests for loan modifications. He reported that in
working with local banks, the agency identified that a
little over 80 out of 300 loans were modified; however, the
80 loans represented close to 44 percent of the total
portfolio. The agency had been impacted by conduit revenue
bonds. He explained that the program principally supported
Alaska's access to the healthcare sector within the state.
Over time, the agency had issued a little over $1.6 billion
in conduit revenue bonds, including close to $200 million
in 2020. He looked at the project finance category on slide
5 and stated that individual projects and developments had
been impacted as well. The agency had been required to
provide some modifications under some of the loans for
businesses heavily impacted, particularly within the oil
and gas sector.
3:08:25 PM
Mr. Weitzner moved to slide 6 and continued to address
AIDEA programs. He addressed infrastructure development,
which included bringing larger project developments that
were high-impact for Alaska. The agency initiated
development and worked with the private sector in
fulfilling the development to be construction-ready. He
used the Ambler Access Project as an example. He spoke
about the agency's sustainable strategy for energy
transmission and supply (SETS) directed towards energy. The
fund had funded the IEP [Interior Energy Project] in
Fairbanks and the SSQ [Sterling Substation and Quartz
Creek] line extension for the Bradley Lake project in
collaboration with the Alaska Energy Authority.
Mr. Weitzner discussed the agency's small business loan
programs administered through DCCED [slide 6]. The loans
were directed towards rural communities as well as smaller
businesses within the state that need additional support.
Mr. Weitzner turned to a map of Alaska on slide 7 showing
AIDEA project and asset locations. The slide showed the
impact of AIDEA's projects and loans in 2020. He shared
that in fulfilling its mission for economic growth in
Alaska, AIDEA had been a resource for many communities
across the state. He detailed that much of the economic
development and jobs supported by AIDEA's programs and
project financing had resulted in responsible development
of Alaska's natural resources and economic diversification
projects. He explained that AIDEA acted as a catalyst for
the economic development within communities. He stated that
public funding gained from taxes on commercial real estate
development through the agency's loan participation program
or infrastructure and natural resource development through
project finance activities significantly contributed to
economic security within the communities.
Mr. Weitzner advanced to slide 8 and highlighted AIDEA's
project investment and finance, which led to infrastructure
development. He shared that currently under the different
sectors within Alaska, AIDEA had invested a little over
$600 million in projects to date. He gave examples
including the FedEx hangar at the Ted Stevens International
Airport in Anchorage, the Coast Guard addition to the JBER
[Joint Base Elmendorf-Richardson] facilities, the Ketchikan
shipyard, the Skagway ore terminal, and working with Hex
LLC in the Cook Inlet. The program supported Alaska's
industrial sector under a P3 [public private partnership]
structure where AIDEA worked with private sector
investment. He relayed that in some cases AIDEA owned and
leased the facilities or provided lending to the operation.
He stated that the direct investment was provided under a
long-term capital basis. The agency analyzed the investment
opportunity and approached investment from a risk
management standpoint in its underwriting. Investments were
based purely on feasible economic structures. He relayed
that AIDEA was not structured by the legislature to provide
subsidies. The agency provided opportunities for growth
capital within the state based on supported economic
structures that provided a return on the capital for future
investment into Alaska.
3:12:32 PM
Mr. Weitzner advanced to slide 9 titled "Financial Summary
FY2020." He relayed that AIDEA's audited statements were
provided to the legislature on January 8, 2021. He noted
the audited statements were required to be provided
annually by January 10 under AS 44.88.205 and AS 44.88.210.
He highlighted that AIDEA had three distinct areas of
investment. The first was the Enterprise Development
Account for the Loan Participation Program in the amount of
$456.9 million. The second was the Development Project
Finance area including projects funded under AIDEA's
revolving fund and capital assets on the books under the
revolving fund. He noted that projects were invested for a
return, while capital assets were economic development
projects residing on AIDEA's portfolio under asset
management. He explained that AIDEA did not receive a
return on capital assets. He used the Snettisham
Hydroelectric Project [in Juneau] and the Alaska Ship and
Dry Dock in Ketchikan as examples.
Mr. Weitzner continued to review the development project
finance category on slide 9. Other projects included in the
category fell under the SETS program. He detailed that the
program was initially funded through an appropriation by
the legislature of $145 million; about $125 million was
invested into the Interior Energy Project or Interior Gas
Utility in Fairbanks, which had been provided with zero
cost funding for the first 15 years and marginal 25 basis
point return funding for the next 35 years. He
characterized it as patient capital. He highlighted the
Arctic Infrastructure Development Fund that was recently
funded with a dedication of $35 million from AIDEA's
revolving fund in support of the Ambler Access Project. He
detailed that AIDEA had recently concluded an agreement
with Ambler Metals where AIDEA would commit up to $35
million in matching funds (matching the company's $35
million) for the final feasibility and permitting
activities of development of the road.
3:15:50 PM
Mr. Weitzner reviewed other assets on AIDEA's balance sheet
on slide 9 including capital reserves of $398.9 million. He
expounded that AIDEA had accumulated the reserves through
its successful investments. The money had been accumulated
in cash for reinvestment into the state for projects
currently within AIDEA's pipeline. The capital reserves
were currently AIDEA's only source of capital for future
investment and ongoing projects.
Mr. Weitzner stated that when aggregating projects that
were not providing a return to AIDEA, the long-term
financing supported through the SETS fund for the Interior
Gas Utility, and expenditures for the restructuring of the
Mustang Project not currently providing a return, AIDEA had
$370 million in assets (out of the net $1.4 billion) on the
books not providing a return. Ultimately when looking at
the revenues and cashflow portion of the slide, the net
base was slightly above $1 billion, which was producing the
agency's revenue. The revenue was allowing the agency to
meet its operating costs. He explained that through the
dividend statute, AIDEA recognized and reported statutory
net income and AIDEA's board would declare a dividend based
on the income (somewhere between 25 to 50 percent of the
statutory net income).
Mr. Weitzner relayed that over the last two years in 2019
and 2020 AIDEA's board had declared the full 50 percent
dividend. The FY 20 dividend was $17.3 million to be
distributed to the General Fund in FY 22. He pointed out
that in FY 19 and FY 20, AIDEA reported over $80 million in
each of the years; however, by accounting standards it
included unrealized gains in investment securities
(representing unrealized gains from the capital reserve).
The number was slightly under $20 million in FY 19 and over
$20 million in FY 20. He pointed out that based on
operations, AIDEA ran at a level of about $60 million. The
agency's operating expenses were fairly even at about $30
million up to $32 million. The agency's non-operating
revenue expenses fluctuated relative to the underlying
projects and in some cases when the projects were sold,
which was the case in 2018 with Pentex informing the
Interior Gas Utility there was an impact on AIDEA's
operating income. He stated that ultimately AIDEA had
statutory net income that was fairly stable at about the
$30 million level pending its investment in new projects
and growing the asset/project base with the dedication of
its capital reserves and bringing AIDEA's project pipeline
to fruition for investment in the underlying projects.
Typically, AIDEA had returned between 3.5 to 10 percent on
the projects based on the risk margins assessed for
investment underwriting. He noted it also depended on which
program the investment was under - the Enterprise
Development Account or project finance activities.
3:20:32 PM
Mr. Weitzner reported on AIDEA's bonding capacity on slide
10. The authority's bonding capacity was subject to and
determined by the external credit rating agencies and
AIDEA's current credit standing. He shared that prior to
2019, AIDEA held AA+ credit ratings from S&P and Aa3 from
Moody's. He detailed that within 2019, Moody's had issued a
downgrade lowering the rating to A2. Additionally, AIDEA
had received a notification from S&P that it would review
the agency's credit rating during 2019. He reported that
AIDEA had taken the action of defeasing $39.7 million in
outstanding general obligations and closed out the credit
ratings. The agency did not currently have a credit rating
on the market. He explained that AIDEA would need to
reinitiate the process in order to do any bonding.
Mr. Weitzner continued to address slide 10. The credit
rating agencies had viewed the use of different reserves to
meet the state's budget deficiencies and had highlighted
issues attached to the options. The agency had presented to
the credit rating agencies and the historical focus had
been the use of the dividend statute in AIDEA transferring
funding to the General Fund. He informed the committee that
AIDEA's capacity in providing future financing
opportunities was dependent on the credit rating agencies'
view of the current issues with the dividend statute, the
use of reserves, and the availability of reserves for
future financing and investment. He reported that AIDEA
currently had bond authorizations that had been approved by
the legislature for up to $145 million to finance the
infrastructure and construction costs of the Bokan-Dotson
Ridge Rare Earth Elemental Project (up to $125 million to
finance the infrastructure) and construction costs of the
Niblack project. He relayed that AIDEA had up to $65
million to finance the expansion, modification,
improvement, and upgrading of the Skagway ore terminal.
Mr. Weitzner reported that AIDEA was undergoing a review of
its investment programs and portfolios for ways of
accessing external credit and securitizations. The agency
was looking at its loan participation program and seeking
an asset-base security structure. There was and had been
over $1 trillion per year in these types of securities
issued by different agencies like AIDEA for programs
similar to the loan participation program. He stated that
AIDEA was actively looking at ways of raising external
sources of capital and augmenting its balance sheet and
investment activities.
3:24:04 PM
Mr. Weitzner addressed the proposed FY 22 fund draw in the
governor's budget on slide 11. He referenced the proposed
fund draw within the governor's budget. He highlighted that
AIDEA supported the governor's operating budget. He noted
that the authority passed Resolution G-2101 in January 2021
showing the organization's support of the governor's
proposed operating budget. He referenced page 54 of the
governor's budget where AIDEA was identified as declaring
the dividend for the General Fund. He noted the dividend
amount was $17,305,000 for FY 22. The original amount was a
placeholder pending AIDEA's board declaration for the
dividend.
Mr. Weitzner referenced the fund capitalization item under
Section 22, item (x) in the governor's budget, which was
equal to 15 percent of all revenue from taxes levied by AS
42.55.011 that was not required to be deposited in the
Constitutional Budget Reserve (CBR). The governor's budget
appropriated the amount estimated at $60 million to the oil
and gas tax credit fund (AS 43.55.028). He noted that the
$60 million was an estimated figure and related to the
royalties to be received on Alaskan crude oil production in
FY 22. He reported that the estimate of $60 million was
made at the current forecast of $48 per barrel. He remarked
that the oil market had recovered since the estimate had
been put in place; oil prices continued to fluctuate and
were currently above $60 per barrel. The Department of
Revenue had provided its fall 2020 forecast presentation to
the House Finance Committee on February 22, 2021. He
referenced slide 21 in DOR's presentation where the
department highlighted that a $1 increase in the Alaska
North Slope crude price led to an approximate $25 million
to $30 million increase in unrestricted general fund (UGF)
revenue. He pointed out that given the increase in oil
price, the appropriation may not be needed, depending on
the use of funds. He noted that if the fund draw occurred,
it would come from AIDEA's capital reserves of $398.9
million.
Mr. Weitzner continued to review slide 11. He stated that
AIDEA's capital reserves were its primary source of capital
for new and ongoing investments. He stated that an
alternative use (opportunity cost) of the $60 million was
in the investments AIDEA would be making in current and
future projects within the state. The returns on AIDEA's
projects ranged from 3.5 to 9 percent. Additionally,
projects created or retained jobs for Alaskans and
generated local/state tax and royalty income. He reported
that the reinvestment into communities contributed to the
Permanent Fund, particularly in the natural resource
projects.
3:28:16 PM
Mr. Weitzner discussed responsible resource development
AIDEA was undertaking. The upcoming slides addressed the
1002 Area lease sale, the Ambler Access project, and the
West Susitna Access project. The topic addressed accessing
Alaska's abundant natural resources and the associated
economic development opportunity. He stated that Alaska was
blessed with abundant natural resources; however, it was
increasingly being limited in its access to those
resources. He remarked that the development of Alaska's
resources not only provided an important domestic resource
for the country's demand for base and strategic metals such
as oil and gas, but it also produced royalties to the state
and contributed a portion of the royalties to Alaska's
future endowment in the Permanent Fund and provided needed
funding to Alaska's communities.
Mr. Weitzner discussed the Section 1002 area lease sale and
the leases AIDEA had won under bid. He was able to answer
any questions the committee may have on the topic. Slide 14
answered some principal questions on the benefits of the
sale. He noted that slide 15 reviewed the Ambler Access
project and benefits. He thanked the committee for its
time.
3:30:26 PM
Representative Josephson referenced slide 12 that called
the projects responsible resource development. He stated
that there were numerous Alaskans who had concerns about
the responsibility of the Ambler project. He asked if the
statement was fair. He stated there was significant
criticism of the Ambler mining project from local and
tribal constituencies.
Mr. Weitzner stated his understanding of the question.
Representative Josephson clarified his question. He
understood that AIDEA wanted to support responsible
resource development. However, there were constituencies to
the west of the project and primarily to the southeast of
the project that were profoundly concerned about whether
the project could be developed responsibly.
Mr. Weitzner believed it was a fair statement that the
communities had expressed concern about the responsible
development for the Ambler Access project.
Representative Josephson referenced the shared expenses of
$35 million by AIDEA and $35 million by Ambler Metals. He
asked if it was true that Ambler Metals would not be paying
the $35 million because it would receive a credit related
to the cost of tolling on the road. He asked if Ambler
Metals would truly contribute $35 million.
Mr. Weitzner responded that the company was committing $35
million and would be funding the amount for the feasibility
and permitting activities leading to the development of the
road. The credit would only occur once the road was
developed and in use. He explained that AIDEA and the state
had committed funds to the road, which they would be
recovering in proceeds under the toll or use agreements
from any parties using the road. He detailed that AIDEA
would be recovering its investment in the road and would
use the funds to reinvest in other projects. He stated it
was similar to what Ambler Metals was looking to receive
for its contribution for development of the road.
Ultimately, the company would receive a credit or a reduced
payment on the toll road.
3:34:18 PM
Representative Josephson appreciated the answer. He
mentioned the Arctic Infrastructure Development Fund (AIDF)
and asked if there was any concern with statutes that put a
cap on the loan amount. He asked if it was being challenged
or litigated that AIDEA had breached the cap on the amount
under AIDF.
Mr. Weitzner answered that he did not believe there was a
concern. He was not aware of any concern within AIDEA about
the issue. He relayed that AIDEA would be owning the
operating entity of the Ambler Access Road. He explained
that AIDEA was directly investing funds into the project
development with Ambler Metals. He elaborated that once a
final investment decision had been made, the AIDEA board
would be an owner. He clarified that AIDEA was not loaning
funds to a third-party operator.
3:35:57 PM
Representative LeBon noted that Mr. Weitzner had mentioned
AIDEA had been founded in 1967. He what the state had
originally invested to capitalize AIDEA.
Mr. Weitzner replied that the initial capitalization for
the establishment of the authority was minimal. He
explained that AIDEA had been established as a conduit
revenue bond issuer where AIDEA acted as the tax exempt or
taxable authority for issuance of the bonds. He elaborated
that later in the 1970s and 1980s a DOR loan pool had been
transferred to AIDEA as the initial capitalization in the
sum of about $200 million, which had created AIDEA's loan
participation program. Subsequently, with the development
of the Delong Mountain Transportation System, there had
been a transfer and appropriation of additional funds plus
$15 million in cash capital to AIDEA. In aggregate the
initial capitalization in appropriations by the legislature
was $309 million.
Representative LeBon stated that AIDEA had paid the money
back and then some. He referenced slide 6 related to AIDEA
programs. He shared that when he had worked in the banking
sector, he had participated on loans with AIDEA and had a
working knowledge of how the agency functioned. He looked
at the small business loans category and discussed that
AIDEA currently had two direct loan programs to help with
long-term financing for startup and expansion for small
businesses. He asked for detail. He asked if the program
was squeezing banks out of the specific lending category.
He asked how the program was different from what a bank
could do for borrowers.
3:38:34 PM
Mr. Weitzner responded that one of the AIDEA's small
business loan programs was the Rural Development Initiative
Fund, which provided loans up to $300,000 for the startup
or expansion of businesses in communities with a population
of 5,000 or less as long as they were not connected by road
or rail to Anchorage or Fairbanks. Otherwise, the
population cap was 2,000 for communities connected by road
or rail. He relayed that very little financing was being
provided to rural communities and AIDEA's program was one
of the more important programs - administered by DCCED -
providing financing for startups and initiating small
businesses in-state. The second program was the Small
Business Economic Development Program that provided fixed
asset loans and working capital up to $300,000. The fixed
asset loans could go out to 20 years and were primarily for
small businesses across Alaska as defined by the Small
Business Administration. The loans required matching funds
via private financing. The program worked in concert with
the financial sector. He relayed that a large part of the
funding went to commercial fishermen, who had limited
access to financial capital within the state in some cases.
Representative LeBon asked for verification that from the
commercial banking point of view in Alaska, AIDEA was
filling a niche with the loan programs and was not crowding
out the banking community from making loans. He assumed
that if a bank wanted to make the loans, there was nothing
to prohibit them from doing so. He asked if AIDEA was
pricing the loans at an interest rate that made them more
attractive than what a bank could offer.
Mr. Weitzner answered that the loans did not compete with
the financial sector within the state. He believed rates
were fixed at prime plus [inaudible] percent. He elaborated
that the loan rates were within what the banks provided in
Alaska. He believed it came down to an issue of access to
capital. He detailed that the programs were operated
differently than reviews by the financial sector;
therefore, there may be more opportunity for the borrowers
to use AIDEA's loan program versus going directly to a
bank. He added that one of the programs required that the
borrower had been declined by the financial sector. He
relayed that the programs were not structured to compete
with Alaska's banks and credit unions.
Representative LeBon stated that in the early 1980s the
state had a small business loan program. He shared that the
program had required the borrower to submit a letter from a
bank specifying the loan request had been declined. He
relayed that he had small business owners coming to see him
at the bank just to ask for the letter. He reported that
borrowers had not wanted to present a loan proposal to him
because at the time, the state's repayment terms, interest
rates, fees, and collateral requirements were better than
what the banking community could offer. He believed it had
been a bit too political in its loan approval process and
that a few too many marginal loans had been made. He stated
that the entire program had ended after the shake out in
the state's economy in the mid-1980s. He stated that he
knew AIDEA was doing it right.
3:42:57 PM
Vice-Chair Ortiz turned to slide 13 related to the 1002
area lease sale. He noted there had been substantial media
coverage when the lease sale had gone forward. He asked if
it was the first time AIDEA had participated in a lease
sale.
Mr. Weitzner answered that it was the first time AIDEA had
directly participated in an initial lease sale program. He
highlighted that from AIDEA had interacted with leases in
its experience with the oil and gas sector in Alaska. He
relayed that through the Mustang project, AIDEA had
acquired or transferred leases within the area to an entity
wholly owned by AIDEA. He noted that the 1002 area lease
sale was not the only process AIDEA had with oil and gas
leases within Alaska; there were other situations that had
occurred in Cook Inlet. He reiterated that the 1002 area
lease sale was the first direct lease sale program with
federal oil and gas.
Vice-Chair Ortiz looked at bullet 3 on slide 13
highlighting that AIDEA had submitted bids on 11 tracts
worth just under the agency's authorized $20 million. He
remarked that the lease cost was annual. He asked what the
annual cost would be for AIDEA to hold the leases.
Mr. Weitzner answered that AIDEA had an annual obligation
of $39 million in aggregate on the 10-year leases.
Vice-Chair Ortiz asked about the opportunity costs of the
funds. He wondered what other areas the funds may have been
used in if they were not tied up in the 1002 lease sale.
Mr. Weitzner replied that the funds would come from AIDEA's
capital reserves. He detailed that $20 million had been
transferred from the revolving fund to the Arctic
Infrastructure Development Fund in order to ensure AIDEA
could encumber its obligation for the acquisition of the
leases and obligations in the first year. He explained that
on an ongoing basis, which would be reviewed by AIDEA's
board, additional funds would have to be dedicated to the
AIDF on an ongoing basis. The funding would come out of
capital reserves and would otherwise go toward other
investment opportunities in Alaska. He highlighted that
with the decision made by the board for the opportunity in
the lease tracts, AIDEA looked at the economic development
aspects that came with the investment. He stated that if
AIDEA was allowed to reach development on the oil and gas
leases that were ultimately viewed to be 1.4 million
barrels of oil per day through the Trans-Alaska Pipeline
System (TAPS), it would bring engagement with local
communities, employment, and tax based benefits, which made
it one of the major investment opportunities for AIDEA
within the state.
3:47:06 PM
Representative Wool asked about AIDEA's risk assessment on
the [1002 area lease sale] project. He referenced Mr.
Weitzner's statement that AIDEA looked at everything
through a risk lens. He noted slide 13 specified that AIDEA
was the highest bidder on 9 out of 11 tracts. He asked if
AIDEA was the only bidder on the tracts.
Mr. Weitzner answered that AIDEA had looked at the USGS
record for the initial geotechnical studies available
across the section 1002 area. He explained that the record
had been updated in 2005 and 2010. Additionally, AIDEA had
looked at the assessment of the Congressional budget office
and an analysis conducted by a Congressional Resource
Committee for the 2017 Tax Budget Act passed by Congress.
He explained that AIDEA had used all of the information in
aggregate regarding the economic development opportunity
and the royalty stream that would be available to the state
from AIDEA's development of the tracts. He confirmed that
AIDEA was the highest bidder. He clarified that AIDEA had
presented a minimum bid across the 11 tracts. He expressed
that there was a very high optionality associated with the
investment by AIDEA and with the development oil and the
contribution in royalties to the state, AIDEA found that
the benefits outweighed the initial investment.
Representative Wool referenced Mr. Weitzner's testimony it
was the first time AIDEA had participated in a lease sale.
He looked at AIDEA's other investments such as Red Dog
Mine, IGU, the Ketchikan Shipyard, a hotel in Valdez, and
the Ambler Road. He observed that in the other projects
AIDEA partnered with a private entity. He remarked there
was no private entity involved in the 1002 area lease sale.
He thought AIDEA was speculative that it would be able to
sell the leases in the future. He noted that two other oil
companies had bid on the tracts, but none of the "big
three" had submitted bids. He asked if it had concerned
AIDEA. He noted that Mr. Weitzner had mentioned USGS and
the potential oil going into the pipeline. He asked if
AIDEA had also assessed that almost every available capital
fund had already said they would not invest in the area. He
asked if the information had been included in AIDEA's risk
assessment. He considered that perhaps it was not a good
investment, which was the reason other major oil companies
were staying away. He asked why AIDEA had gone in solo
without a P3 partnership.
3:50:46 PM
Mr. Weitzer responded to Representative Wool's question
about the absence of a private partner in the project. He
associated the project with AIDEA's effort to include
infrastructure development in its programs. He reported
that AIDEA had not initiated the Ambler Access Project or
any roads to resources projects (it was currently looking
at to provide access to Alaska's resources) with partners.
He elaborated that AIDEA had developed partners through the
development of the road in the Ambler Access Project with
the receipt of the joint record decision on the federal
aspects of the route. He noted the joint record decision
had been a key milestone and had initiated the
conversations with Ambler Metals about the final stages for
feasibility and permitting hopefully leading to an
investment decision for the road. He noted it would take
full agreement by all of the landowners along the route. He
remarked there was significant work ahead.
Mr. Weitzner related the way AIDEA had engaged in the
Section 1002 area in a similar way. He stated that AIDEA
was established by the legislature to attract private
capital and investment to Alaska. One of the agency's roles
was acting as a key partner and understanding the
requirements of the private sector structures they were
looking to put in place and how project developments came
together. The agency also acted as a go-between on
difficult issues relating to land and other. He highlighted
the initial way AIDEA had become involved in the FedEx
hangar at the Ted Stevens International Airport. He
explained that initially there had been some reluctance
working with the Department of Transportation and Public
Facilities (DOT) on land issues. He elaborated that AIDEA
had acted as the go-between and had entered into the lease
with DOT. Subsequently, AIDEA had built the hangar and
leased it to FedEx. He reported that the hangar had been in
consistent operation for 20 years.
Mr. Weitzner believed there was a similar role in
addressing distinct conservation issues related to the
state's rights under Alaska National Interest Lands
Conservation Act (ANILCA) for Section 1002. He saw AIDEA
playing the key role in responsible development of the area
through engagement with the private sector. He viewed
AIDEA's investment in the tracts as defining the key role.
Mr. Weitzner addressed Representative Wool's question about
how AIDEA assessed the reluctance of external financial
institutions and the decisions the institutions may be
making about future investment in the Arctic. He reported
that AIDEA was focused on developing Alaska's natural
resources and ensuring Alaskans had access to the resources
and the associated economic development benefits currently
and in the future. He furthered that AIDEA saw its role in
addressing the concerns of the financial community by
highlighting how Alaska had always responsibly developed
its natural resources and identifying that Alaska had some
of the strictest conditions and requirements of any other
environment, particularly with oil and gas development on
the North Slope. He stated it would be an education process
to bring the parties in to work with AIDEA. He believed
there should still be room for those parties to be
investing in the State of Alaska based on the merits of the
investment. He elaborated that in the case of the 1002
area, merits included the fact that development on the
North Slope worked hand in hand with conservation.
3:55:04 PM
Representative Wool referenced the AIDEA dividend that
ranged between 25 to 50 percent. He observed that AIDEA had
paid a dividend of about 33 percent in 2018 and close to 50
percent in the past couple of years. He asked how the
agency came up with the number.
Mr. Weitzner answered that the amount was determined
through an analysis of the underlying operations and
discussion with the board. He explained there was a
definition and calculation that identified a maximum amount
based on the statutory net income. The boundaries of 25
percent and 50 percent were provided in the conversation
with the board. He reported there were areas of reserves
that needed to be put in place as well, which AIDEA
modified. Ultimately, the total dividend was declared by
the board. He relayed that in 2019 and 2020 the full 50
percent had been declared.
Representative Josephson stated that the Senate Finance
Committee held a hearing on March 1 and had learned AIDEA
would do a cost-benefit analysis on the Ambler project. He
noted that AIDEA had done an independent cost-benefit
analysis for the Red Dog Mine decades back. He asked
whether AIDEA would seek a similar cost-benefit analysis
for Ambler.
Mr. Weitzner responded that the cost-benefit analysis would
be done with independent support. He stated it was part of
the process, as it had been with the Delong Mountain
Transportation System. He shared that AIDEA had an
independent assessment on the cost-benefit analysis with
the review for the record decision and the process would
continue.
Representative Josephson shared that he had been co-chair
of the House Resources Committee in 2018. He recalled that
Ambler Metals had reported it could build the road
independently and without use of state funds. He asked how
AIDEA could have known that the project could not have been
developed without its assistance. He asked if AIDEA had
looked into the issue to see whether it had to make its own
investment or whether Ambler Metals or Trilogy would front
the costs.
Mr. Weitzner stated his understanding of the question
related to Ambler Metals. He highlighted that the record of
decision for the route, the right of way grants signed with
the Bureau of Land Management, and the right of way permit
with the National Park Service, resided with AIDEA. He
noted that AIDEA was the applicant for the route. He
furthered that if Ambler Metals were to seek to build a
road independently, it would require going through a full
permitting process, which would delay them for a lengthy
period of time. He believed AIDEA's development agreement
with Ambler Metals represented the fact that the entities
were working in partnership on the existing route and
record of decision that had been reached. The entities were
working together on the road that AIDEA was looking to
develop.
3:59:28 PM
Co-Chair Foster thanked Mr. Weitzner for his presentation.
He reviewed the schedule for the following day.
ADJOURNMENT
4:00:03 PM
The meeting was adjourned at 4:00 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AMHTA 030921 H FIN PPT.pdf |
HFIN 3/9/2021 1:30:00 PM |
|
| AIDEA Excess Capital Letter (1.8.21) for HFIN (3.9.21).pdf |
HFIN 3/9/2021 1:30:00 PM |
|
| AIDEA Presentation for House Finance Committee (3.9.21).pdf |
HFIN 3/9/2021 1:30:00 PM |
|
| HB71 CS Workdraft Mental Health CS-0.5 v.I.pdf |
HFIN 3/9/2021 1:30:00 PM |
HB 71 |
| HB71 CS Workdraft Mental Health CS-0 v.B.pdf |
HFIN 3/9/2021 1:30:00 PM |
HB 71 |
| HB 69 Distribution of Bargaining Unit Salary Adjustments030821.pdf |
HFIN 3/9/2021 1:30:00 PM |
|
| HB 69 OMB Requested Structure Differences 030821 .pdf |
HFIN 3/9/2021 1:30:00 PM |
HB 69 |
| HB69 OP CS Workdraft Budget CS-0.5 v.I.pdf |
HFIN 3/9/2021 1:30:00 PM |
HB 69 |
| HB69 CS Workdraft OP Budget CS-0 v.B.pdf |
HFIN 3/9/2021 1:30:00 PM |
HB 69 |