02/19/2004 03:06 PM House HES
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES
STANDING COMMITTEE
February 19, 2004
3:06 p.m.
MEMBERS PRESENT
Representative Peggy Wilson, Chair
Representative Carl Gatto, Vice Chair
Representative John Coghill
Representative Paul Seaton
Representative Kelly Wolf
Representative Sharon Cissna
MEMBERS ABSENT
Representative Mary Kapsner
COMMITTEE CALENDAR
HOUSE BILL NO. 380
"An Act relating to aggravating factors at sentencing."
- MOVED HB 380 OUT OF COMMITTEE
HOUSE BILL NO. 404
"An Act relating to the Alaska ACPE on Postsecondary Education;
relating to the Alaska Student Loan Corporation; relating to
bonds of the corporation; relating to loan and grant programs of
the ACPE; relating to an exemption from the State Procurement
Code regarding certain contracts of the ACPE or corporation;
making conforming changes; and providing for an effective date."
- MOVED CSHB 404(HES) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 380
SHORT TITLE: AGGRAVATING FACTOR FOR DRUG OVERDOSE SALE
SPONSOR(S): REPRESENTATIVE(S) MEYER
01/20/04 (H) READ THE FIRST TIME - REFERRALS
01/20/04 (H) HES, JUD
02/12/04 (H) HES AT 3:00 PM CAPITOL 106
02/12/04 (H) -- Meeting Canceled --
02/19/04 (H) HES AT 3:00 PM CAPITOL 106
BILL: HB 404
SHORT TITLE: STUDENT LOAN PROGRAMS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
01/28/04 (H) READ THE FIRST TIME - REFERRALS
01/28/04 (H) EDU, HES, FIN
02/19/04 (H) HES AT 3:00 PM CAPITOL 106
WITNESS REGISTER
REPRESENTATIVE KEVIN MEYER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As sponsor testified on HB 380.
SUZANNE CUNNINGHAM, staff
to Representative Meyer
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on HB 380 and answered questions
from the members.
DIANE BARRANS, Executive Director
Postsecondary Education ACPE
Department of Education and Early Development;
Executive Officer, Alaska Student Loan Corporation
Juneau, Alaska
POSITION STATEMENT: Testified on HB 404 and answered questions
from the members.
MARY ELLEN BEARDSLEY, Assistant Attorney General
Commercial/Fair Business Section
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Offered to answer questions from the
members on HB 404.
BRUCE JOHNSON, Director QS2
Association of Alaska School Boards
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 404.
ACTION NARRATIVE
TAPE 04-12, SIDE A
Number 0001
CHAIR PEGGY WILSON called the House Health, Education and Social
Services Standing Committee meeting to order at 3:06 p.m.
Representatives Wilson, Gatto, Coghill, and Seaton were present
at the call to order. Representatives Cissna and Wolf arrived
as the meeting was in progress.
HB 380-AGGRAVATING FACTOR FOR DRUG OVERDOSE SALE
Number 0050
CHAIR WILSON announced that the first order of business will be
HOUSE BILL NO. 380, "An Act relating to aggravating factors at
sentencing."
Number 0070
REPRESENTATIVE KEVIN MEYER, Alaska State Legislature, testified
as sponsor of HB 380. He explained that while it is important
that this bill be reviewed by the House Health Education and
Social Services Standing Committee, the subject is heavily
tilted toward the judiciary and will be closely reviewed by the
House Judiciary Standing Committee. The bill pertains to
illegal drug sales and adds a new aggravator [in sentencing].
He commented that if this bill passes it will be 31st
aggravator.
Number 0127
CHAIR WILSON told the members that the committee will look at
the portion of the bill that is pertinent to this committee, and
the House Judiciary Standing Committee will address the legal
aspects of the bill.
REPRESENTATIVE MEYER explained that HB 380 adds an aggravator
for illegal sales of drugs that result in a death. He said
currently if a person is convicted of selling illegal drugs the
judge may apply a sentence of a presumptive term which is five
years, and a maximum of 20 years. Representative Meyer told the
members that in the sentencing stage years can be added to the
presumptive term with aggravators, or deducted with mitigators.
REPRESENTATIVE MEYER pointed to an example in the bill packet of
a case that occurred in Ketchikan where a person was convicted
of selling heroin. During the trial process it was discovered
that that sale of heroin led to another person's death due to an
overdose. He told the members that during the sentencing
proceedings it was argued that if physical harm occurs because
of sale of drugs, then additional time can be added to the
sentence. Representative Meyer said that the argument was not
upheld because it was said that no physical harm or injury
occurred. He told the members that there were arguments back
and forth that death is [or is not] physical injury.
REPRESENTATIVE MEYER summarized that this bill would add an
aggravator for death so that there is no question when cases
similar to this come to the courts. He said he believes that a
fatal overdose should be considered when sentencing someone of
illegal sale of drugs because there are other ramifications
involved besides the selling of drugs.
Number 0367
REPRESENTATIVE GATTO asked if this aggravator would apply if the
drugs were received as a gift. For instance, he said, an
individual could be coerced or given drugs without paying for
them. Another situation might be where an individual gives
someone medicine, which could be the wrong dose, with the
understanding that the individual receiving the medicine pay the
person back at a later time.
Number 0424
SUZANNE CUNNINGHAM, staff to Representative Meyer, Alaska State
Legislature, testified on HB 380 and answered questions from the
members. In response to Representative Gatto's question she
explained that under the aggravator it says that if the
defendant is convicted of an offense under AS 11.71, which is
the controlled substances criminal statutes, misconduct
involving controlled substances includes delivering any amount
of a certain drug, selling a drug, or having an enterprise where
drugs are sold. In the two examples which Representative Gatto
posed, the individuals would have to be convicted under this
statute for the aggravator to apply.
CHAIR WILSON asked for clarification on illegal drugs.
MS. CUNNINGHAM pointed to a list in the members' packets with a
schedule of all the IA through VIA drugs. There are
prescription drugs that are listed, she noted. If a person
gives someone a prescription drug, and is convicted [under AS
11.71], then this aggravator could apply, Ms. Cunningham
summarized.
Number 0506
CHAIR WILSON announced for the record that Representative Wolf
has joined the meeting.
REPRESENTATIVE MEYER commented that this is something that the
two attorneys would discuss during the sentencing portion of the
trial. He said it is important to note that this aggravator
does not become a factor until a person has been found guilty of
a crime. Representative Meyer explained that if someone gave
Representative Gatto an aspirin and he died of an overdose, he
does not believe this would have any [relevance].
Number 0541
REPRESENTATIVE COGHILL emphasized that this bill will allow a
judge discretion in sentencing someone who has been convicted
[of a crime] and is not something that must be used. He stated
that because of some narrowly crafted laws, mitigators and
aggravators have become necessary tools in sentencing.
Number 0585
REPRESENTATIVE GATTO told of a person he knows in the community
who has been involved with kids, sports, and does many good
things. However, one day this person did something stupid.
Someone needed medication which this person happened to have,
and he sold it to the other person. Representative Gatto
pointed out that no one died, but he's facing 20 years [in
prison]. Representative Gatto asked for clarification that a
death would have to occur for this bill to have any effect.
REPRESENTATIVE MEYER replied that is correct; someone would have
to die for this bill to have any effect.
REPRESENTATIVE GATTO commented that in the example he used this
person was just saying that he paid $14 per pill, and if the
other person would pay him the $14 he could have it.
REPRESENTATIVE MEYER responded that if this were a situation
where a person did this once and it was a stupid mistake, then
that would be an issue to discuss during the sentencing phase.
CHAIR WILSON announced for the record that Representative Cissna
has joined the meeting.
Number 0670
REPRESENTATIVE SEATON commented that there is one other
significant change in the statute. He pointed to the sponsor
statement where it says currently law allows that if "a person,
other than an accomplice, sustained physical injury", and what
has been taken out [of current law] is "other than accomplice".
Representative Seaton said [with that language removed] the
situation is such that two people can conspire to commit a
crime, and one person will receive an aggravated sentence;
whereas the current statute says the person injured cannot be an
accomplice. Representative Seaton asked for Representative
Meyer to comment on that point.
MS. CUNNINGHAM responded that this bill will add an aggravator
to the current list of aggravators. In the case of Whitesides
v. State of Alaska [where] a person other than an accomplice
sustained a physical injury as a direct result [of the crime].
She told the members that there would be no change to current
law. The way this bill is drafted it does not specify
"accomplice", it says "a person" dies or suffers serious
physical injury from that controlled substance. Ms. Cunningham
said the way it is written implies that the person was selling
or giving drugs to someone. The assumption is that the person
is committing an illegal act and because of that act, someone
dies of it.
REPRESENTATIVE SEATON replied that he understands what Ms.
Cunningham is saying, but said he believes this would provide a
dual standard. If someone experiences physical harm, and the
person is an accomplice, an aggravator does not apply, but if
someone [who is an accomplice] dies, an aggravator does apply,
he pointed out. Representative Seaton commented that perhaps
the House Judiciary Standing Committee should take a look at
this point. He noted that there is the same situation as far as
the seller goes; however, it does not apply to the person if
they are injured, but the aggravator does apply if the person
dies. He stated he does not like the duality of this standard.
CHAIR WILSON agreed that the Representative Seaton's point
should be addressed in the House Judiciary Standing Committee.
Number 0861
REPRESENTATIVE CISSNA asked for clarification of the term
"physical injury."
CHAIR WILSON explained that earlier in the meeting there was
discussion concerning that point. She directed Representative
Cissna to a case in the bill packet [Whitesides v. State of
Alaska] which demonstrates the needs to clarify the law because
a person avoided aggravating factors in the sentencing portion
of the case because death was not considered physical injury.
This bill would add death as an aggravating factor to clarify
statute and provide the courts with an additional tool in
sentencing.
REPRESENTATIVE MEYER commented that currently law provides that
if someone is convicted of selling drugs and a person is
physically injured, then the courts could add [time] to the
sentence. He commented that there isn't any [aggravating
factor] that deals with death. Common sense would say that if a
person dies, the person is physically injured, but in the court
of law [the language] has to be black and white. He summarized
that all this bill does is allow for the sentencing judge to use
this aggravating factor. He emphasized that the judge does not
have to use this in sentencing.
Number 0946
REPRESENTATIVE SEATON referred to AS 11.71 and asked if there is
any potential for a pharmacist who misprescribes to be found
guilty of a crime in this case.
MS. CUNNINGHAM responded that it would have to be proven that
there was intentional misconduct on the part of the pharmacists
to even warrant a criminal charge. She said she is not even
sure that would fall under a misconduct involving a controlled
substance. She said she would look into it and get back to
Representative Seaton.
REPRESENTATIVE SEATON replied that he would appreciate that
because if this bill implements a new liability on pharmacists
then this committee would be concerned. He said that he would
like to draw attention to this issue [to ensure that the bill
does not criminalize a pharmacist's misprescribing drugs].
REPRESENTATIVE GATTO asked if a pharmacist gives a double dose
of pills by accident, is that an offense.
MS. CUNNINGHAM replied that she is unsure if that would be an
offense under AS 11.71, which is the statute this bill deals
with. The statute pertains to misconduct involving a controlled
substance, where a person deals and distributes drugs. She
reiterated that she does not know how the situation he mentioned
would be interpreted under current statutes.
Number 1087
REPRESENTATIVE MEYER told the members that he would get back to
the committee on both questions. He said he believes that
pharmacy issues would fall somewhere else in statutes.
REPRESENTATIVE GATTO shared a story of getting a prescription
that said, put three drops in each ear, three times a day. The
treatment was for his eyes, and it was obvious the problem was
the doctor's writing. So what do you do, he asked, complain to
the doctor, complain to the pharmacist, or just stick [the drops
in his] eyes as it was intended. Errors are made. He said he
believes that no one wants to criminalize a mistake or create a
situation where an [ill-worded statute] generates a lot of
litigation.
Number 1154
REPRESENTATIVE MEYER assured the members that he would check on
the two questions Representatives Gatto and Seaton posed to him.
He told the members that he does not believe either case would
fall under the criminal code, but will verify it.
Number 1170
REPRESENTATIVE SEATON moved to report HB 380 out of committee
with individual recommendations and the accompanying fiscal
notes.
REPRESENTATIVE GATTO objected for discussion purposes. He asked
if there is a zero fiscal note. In response to Representative
Meyer's affirmative response he asked, if there are not
additional court expenses related to the bill as this may be
another [law] to be challenged.
REPRESENTATIVE MEYER commented that he had the same concern, but
found that there are not that many cases where this aggravator
could apply.
REPRESENTATIVE GATTO withdrew his objection.
There being no objection, HB 380 was reported out of the House
Health, Education and Social Services Standing Committee.
REPRESENTATIVE MEYER told the members that he would research and
e-mail answers to the committee's questions.
HB 404-STUDENT LOAN PROGRAMS
Number 1261
CHAIR WILSON announced that the next order of business would be
HOUSE BILL NO. 404, "An Act relating to the Alaska ACPE on
Postsecondary Education; relating to the Alaska Student Loan
Corporation; relating to bonds of the corporation; relating to
loan and grant programs of the ACPE; relating to an exemption
from the State Procurement Code regarding certain contracts of
the ACPE or corporation; making conforming changes; and
providing for an effective date."
Number 1299
DIANE BARRANS, Executive Director, Postsecondary Education
Commission (ACPE), Department of Education and Early
Development; Executive Officer, Alaska Student Loan Corporation,
testified on HB 404 and answered questions from the members.
The ACPE's corporation has successfully implemented the
AlaskAdvantage Programs and services for Alaskans, and now seeks
the legislature's approval for the next step in the
organizational growth, she said.
MS. BARRANS explained that the objectives of HB 404 are
fivefold. First, the bill would broaden the scope of the
corporation's bonding authority to include the ability to bond
for general benefit of the state. In an effort to use the
state's assets as efficiently as possible the corporation has
developed a plan to return a substantial portion of the original
contributed capital that the state provided the corporation to
begin its operations, she added. The change in statute is
requested to ensure that the student loan corporation has the
capacity to return the contributed capital back to the state in
a variety of methods.
MS. BARRANS told the members that the second objective is to
reconstitute the state student grant program to better focus on
Alaska's workforce needs and to enhance the ACPE's outreach and
early awareness initiatives. The proposal redesigns the grant
program to clearly have an Alaska centered focus, she added.
MS. BARRANS said that the third objective is to provide the ACPE
with greater flexibility in offering loan consolidation options
to borrowers. The current statutes limit the way in which the
ACPE can offer consolidation [loans]. For example, she told the
members, some borrowers who have borrowed under the old Alaska
Student Loans Program and the new AlaskAdvantage Programs are
unable to consolidate across programs. The changes in the
statute would permit the corporation and ACPE to do so.
MS. BARRANS explained that the fourth objective put forth is at
the request of the Department of Law. The changes would clarify
the ACPE's ability to administratively issue liens. That is a
statutory authority that the commission currently has; however,
there is concern that there is not currently a clear due process
for borrowers choosing to contest this process, she said. The
bill would remedy that deficiency in the statutes, Ms. Barrans
added.
Number 1437
MS. BARRANS told the members that the last change in statute is
to provide an exemption from the state procurement code for
certain services related to guaranteeing and dispersing the
education loans that the ACPE originates and services. She said
that under the current business structure for education loans,
as a lender, the ACPE must be prepared to do business with the
entities that the schools have relationships with. If a school
uses a disbursing agent that is not available to the ACPE, it is
necessary to engage the services of that disbursing agent in
order to electronically deliver loan funds to that school. Ms.
Barrans explained that it is more efficient for the ACPE,
schools, and a much more expedited process than using paper
warrants. She said she understands that a committee substitute
has been circulated and she offered to speak to the changes.
Number 1458
REPRESENTATIVE SEATON moved to adopt CSHB 404, 23-GH2003\D,
Cook, 2/12/04, as the working document. There being no
objection, CSHB 404, version D was adopted as the working
document.
MS. BARRANS explained that there are two changes in the
committee substitute. It adds a new section, Section 5, and
subsequently renumbers the sections following that. She told
the members that there was a concern expressed in the Senate
Health, Education and Social Services Standing Committee meeting
that there would be some limitation put on the amount the
corporation would be able bond for general state projects of the
state. Ms. Barrans said that the corporation has identified
what it believes is its capacity over the next three years.
There was concern that the corporation not be put in a position
to bond beyond that anticipated capacity, she added. The
aggregate amount of $280 million was placed in Section 5. Ms.
Barrans said that this change would not impair the corporation
from issuing bonds for regular program operating capital, but it
would [provide limitations] for specific general capital
projects of the state.
Number 1546
MS. BARRANS told the members that the other change reflects
concerns of the Senate Health, Education and Social Services
Standing Committee, and conforms the house bill to the senate
bill. She pointed to Section 23, on page 11, which deals with
the ACPE's ability to prioritize grant awards to individuals who
are enrolled in programs of study in the state that lead to
employment in worker shortage area. She explained that the
concerns of the other committee were that by narrowing down to
specific occupational areas, if an emerging occupational need
[were to arise] in Alaska that fell outside of those categories
that the ACPE would not be able to respond without a change in
statute. That limitation was removed, she added. However, in
order to compensate for that change, on page 11, line 24, the
severe shortage definition was changed to require a vacancy rate
in that occupation of 15 percent, rather than 10 percent. Ms.
Barrans explained that as the field of possibilities broaden,
the threshold that qualifies an occupation for a shortage area
was raised. She summarized that those are the differences
between version D before the committee now, and the original
version.
Number 1587
CHAIR WILSON asked Ms. Barrans what happens when there is no
severe shortage.
MS. BARRANS responded that when there are no severe shortages
then grants become equally available to otherwise eligible
applicants, or an open competitive needs-based program.
REPRESENTATIVE GATTO commented that shortages vary. He asked
for Ms. Barrans to clarify that if a shortage is at 15 percent
then [grant preferences are no longer] in effect.
MS. BARRANS responded that through regulations, the ACPE would
annually revisit [the subject of occupations that would
qualify]. The occupational forecast which is provided by the
Department of Labor and Workforce Development is an annual
forecast, she added. Ms. Barrans explained that the ACPE would
make adjustments in the prioritizations based on the forecast.
CHAIR WILSON commented that the Department of Labor and
Workforce Development sends an information sheet with a list of
the top ten areas of occupational shortages. She asked Ms.
Barrans if the ACPE would look at this list and prioritize the
grants based on the highest percentage of shortages [over 15
percent].
Number 1684
MS. BARRANS agreed that would be the kind of tiered approach she
believes the ACPE would take so that the money would be focused
on the areas of greatest need. For example, if there were ten
careers that had shortages greater than 15 percent, there would
be different vacancy rates, and the prioritization [of grants]
would correspond to those [vacancy rates].
MS. BARRANS told the members that there are other factors to
consider such as the issue of fastest growing occupations and
other socioeconomic issues related to existing workforce needs.
For instance, even though a field may not be expanding through a
process of rapid retirement or aging of a particular set of
professionals, there may be a high vacancy rate, she said.
Those factors would also need to be weighed.
Number 1723
REPRESENTATIVE CISSNA asked Ms. Barrans where the definition of
"resident" is in this bill.
MS. BARRANS responded that there is an existing definition of
resident that is incorporated by reference. The ACPE would use
the same definition of resident that is used for all other
financial aide programs, she said. She explained that the
definition is not set out [in this bill] because it is already
defined in another statute and is not being changed. Ms.
Barrans explained that the residency requirement is 12 months of
physical presence in the state, and no claim to residency in
another state.
REPRESENTATIVE SEATON asked when determining the number of
vacancies for nurses, are the positions that are filled by
traveling nurses considered vacant.
MS. BARRANS said that she is not an expert on the methods used
by the Department of Labor and Workforce Development in
projecting workforce needs. She said that she would check with
the department and get back to him on this. Ms. Barrans offered
that she believes the department would consider the fact that
these positions are not permanent employees and that would be
reflected in the workforce forecast as an empty position, rather
than a filled position.
Number 1809
REPRESENTATIVE SEATON responded that he would like confirmation
on that point because if the current wording does not provide
for [traveling nurses positions to be considered vacant], then
he wants to change the language to accommodate that point.
MS. BARRANS assured Representative Seaton that the ACPE does
have latitude through regulation to address these kinds of
issues. She said if there is some factor that understates a
shortage, that can be addressed by the ACPE. Ms. Barrans
commented that she is aware of the concerns related to traveling
nurses and the high costs associated with them.
MARY ELLEN BEARDSLEY, Assistant Attorney General,
Commercial/Fair Business Section, Department of Law, offered to
answer questions from the members on HB 404.
BRUCE JOHNSON, Director QS2, Association of Alaska School
Boards, testified in support of HB 404. He told the members
that when he was traveling in the Northwest Arctic at the end of
January a speech therapist was traveling with him who originated
that week from Wyoming. He explained that her job was to meet
the letter of the law. Most villages do not have speech and
language specialists available. The specialist was being
contracted through SERRC in Juneau, to deliver services on
approximately a six-week basis in the villages to train teachers
and aides, Mr. Johnson commented. There is a real issue in some
specialty areas, he said.
Number 1920
REPRESENTATIVE SEATON referred to the letter from Governor
Murkowski [dated January 28, paragraph 2] in which it states:
ASLC predicts it can return $260 million to the state
over a three-year period...
REPRESENTATIVE SEATON pointed out that the bill refers to $280
million, and asked for clarification on the addition $20
million.
MS. BARRANS replied that the goal is to return $260 million in
net bond proceeds. The gross bonding amount will be somewhat
higher than that because of the cost of issuing the bonds and a
required fund reserve for the indenture out of the bond
proceeds, she explained. In this way it is not a direct expense
for the corporation to issue the bonds, she added. These
[funds] allow for those additional expenses, Ms. Barrans
reiterated.
REPRESENTATIVE SEATON commented that the corporation feels that
the $280 million incorporates the amount that the corporation
originally identified that could be taken out for bonding.
MS. BARRANS said yes, that is correct.
REPRESENTATIVE SEATON said that loans are structured so the
interest on the loans pays off the debt. He asked Ms. Barrans
to explain how this will work and how much of an interest rate
increase will be placed on students if there are $280 million or
$260 million worth of loans and no one repaying, other than
students who are paying on debts that have been acquired for
student loans.
MS. BARRANS responded that there will not be an increase in
student loan [interest] related to these bonds. She explained
that the assets that will be returned from the state will come
from an indenture that is no longer being used to finance
education loans. The original indenture that was created in
1988 had very conservative debt service coverages in it. As
those loans are paid off there is excess earnings on those
loans. She commented that those are loans that were made
anywhere from 2 years to 14 years ago at rates associated with
the cost of those bonds. Ms. Barrans explained that because of
the additional coverage that was in that indenture, as [those
loans retire] those additional assets become available to return
to the state. In structuring the return of capital, the ACPE
has ensured that the interest of the primary customers, student
borrowers, or family borrowers are protected. So the loans are
at a very low rate. Ms. Barrans said that the ACPE has a three-
year process. The first stage happened this month when the ACPE
issued bonds. In June the ACPE will revisit the situation and
ensure that the cash flows that have been reserved are still
appropriate, and then determine how much could be made available
in FY 06. Then a year from June the same process will be
revisited, she explained.
Number 2093
CHAIR WILSON asked how this plan works compared to past
[practices].
MS. BARRANS explained that in 1988 when the Alaska Student Loan
Corporation was established, the state transferred $307 million
in startup capital. She commented that ACPE also has the
authority to issue tax-exempt bonds, which it has done each
year. In 2001, a dividend was created and placed in statute.
The corporation continues to pay that dividend. Ms. Barrans
explained that this initiative is separate from that dividend.
She added that the dividend will be somewhat diminished annually
as a certain amount of assets are returned to the state, but
ACPE will continue to pay a dividend.
CHAIR WILSON asked what the dividend [amount] was this year.
MS. BARRANS told the members that this year the dividend was
$5.6 million for FY 05.
CHAIR WILSON surmised that as the ACPE gets more money without
the state's help, the amount returned as a dividend will be
diminished because the state will have received the funds [that
were originally given to it]. She asked if she understands that
correctly.
MS. BARRANS replied that is correct. The ACPE expects that
dividend to level out somewhere between $4 million to $4.5
million per year, but it will not grow. In response to Chair
Wilson question, Ms. Barrans stated that the dividend will not
go away.
MS. BARRANS explained that in order to implement the
AlaskAdvantage Programs the ACPE began offering federal loans.
In doing so, two new forms of cash flow were brought into the
corporation. One is a special allowance payment that the
federal government pays the ACPE to make and service federal
loans. The ACPE converts those funds into reduced rates for
borrowers, rather than collecting it as extra income, she added.
Number 2190
CHAIR WILSON asked if [the special allowance payment] is [used
as] a Pell Grant.
MS. BARRANS replied that it is not used as a Pell Grant. She
said she could have the finance people talk specifically about
how it works. Generally, she explained, the way it works is if
the corporation makes $10 million in federally guaranteed loans,
there is an income stream associated with that. It is called
the special allowance payment, she added.
MS. BARRANS said that in addition to the special allowance
payments there are quite a bit of bond proceeds received. She
explained that because of the timeframe in which the bonds were
issued, which was prior to October of 1993, if the ACPE
originates federal loans with those proceeds from those
bondings, in addition to the special allowance payment, the
federal government will pay an interest of 9.5 percent yield.
Ms. Barrans said these [loans] are being offered to Alaskan
borrowers at below market prices. She summarized that [the
interest yield on those federal loans] is a key factor in the
ACPE's ability to come forward with this plan.
REPRESENTATIVE SEATON surmised that what Ms. Barrans is saying
is that the Alaska Student Loan Corporation will be issuing a
loan to the state and the state will not have to repay that
loan. Is that correct, he asked. He said that he is still not
clear on the interest from the bonds and where all the payments
are coming from.
MS. BARRANS responded that she will use the bonds that were
issued yesterday as an example of how all of this works
[together]. The corporation issued $78 million in bonds
yesterday to produce a $75 million return to the state, she
said. The assets that were pledged to those bonds were
consolidation loans which were made in 2003. She told the
members that there was actually $80 million in cash that came
out of the old indenture that the ACPE was able to use to
refinance loans that were set at a higher rate. She said that
the reason the ACPE decided to do that, rather than propose a
cash return to the state, was that the borrowers were paying on
fixed rates that were considerably higher than rates that are
being offered on loans today. The ACPE offered a 5.8 percent
consolidation loan, and as a result the ACPE had these
consolidation loan assets. The ACPE then pledged that money for
this indenture [of $78 million]. So the money has been used
once to reduce rates to borrowers. Now it is using that set of
assets by creating a closed indenture which are the assets used
to issue the bonds, she said. Ms. Barrans explained that as
those consolidation loans payoff, it will pay down the bonds.
She told the members that the proceeds will already have been
expended by the state because [the proceeds are] earmarked to
payoff capital projects. She summarized that is how phase one
works. In phase two and three the corporation may need to look
at different structures, as it is unlikely that will be the same
structure used for phases two and three, she said.
Number 2317
CHAIR WILSON clarified that the state is really using the
corporation as leverage to finance capital projects.
MS. BARRANS responded that is one way to frame it. The state
gave the corporation this capital to start the Alaska Student
Loan Program and now the capital is no longer needed, so it is
being returned to the state by the state spending the funds on
capital projects that are of a general state benefit. This is
not part of the Alaska Student Loan Corporation's prime mission;
it is promoting postsecondary participation, Ms. Barrans
explained.
CHAIR WILSON asked if this practice puts the corporation in
jeopardy in any way.
MS. BARRANS said no. The structure that has been put in place
with the aggregate cap, and the process the corporation plans to
follow would preclude any jeopardy to the corporation.
REPRESENTATIVE SEATON surmised that the asset consolidation
loans are collateral for the bonding of the $78 million.
MS. BARRANS replied that is correct.
REPRESENTATIVE SEATON said as the assets are paid off, not only
the loans are being paid off, but also the bonds.
TAPE 04-12, SIDE B
REPRESENTATIVE SEATON commented that the funds are really being
used to payoff the bonds that were given to the state. So when
these bonds are paid off there will be nothing for the ACPE to
loan on. He summarized that any future student loans will
require a bond.
Number 2345
MS. BARRANS agreed with Representative Seaton's statement. She
told the members that the corporation already bonds out of a
separate indenture. In 2002, the corporation created a new
indenture for a number of reasons, she said. One of the reasons
is that a separate indenture synched with the beginning of the
new program which has very different features to the loan assets
that are being made. She told the members that it also did not
make sense because the structure of indentures in this century
are different from those that were created in 1988. She
explained that in 1988 the debt service coverage in that
original indenture was 150 percent, so the ACPE had to have 50
percent more in assets than related to the debt in that
indenture. Those excess [assets] that have been tied up in that
indenture have not been used as working capital for current
programs, it is being returned to the state.
REPRESENTATIVE SEATON suggested that Chair Wilson require that a
flow chart accompany the legislation as it moves forward. He
said he believes it would be much simpler for legislators to
understand how the money moves than talking in general terms.
Number 2292
REPRESENTATIVE COGHILL commented that the entire portfolio has
been wrapped up in this bond indenture.
MS. BARRANS responded that some pictures could be created;
however, she said she is not sure how much clarity that would
lend. There are three indentures in place, she explained. The
first is the original 1988 master trust, which was used from
1988 to 2001. The second is 2002 master indenture that the
corporation plans to use going forward and that has been used
for the last three years, and will be used again this year. The
[third] closed indenture is the mechanism used for returning the
proceeds from those bonds to the state. She agreed that it is a
very complex structure and would be willing to provide a diagram
to the committee if that would be helpful. The indentures are
independent of each other, she added. The corporation is
working out of the 2002 [master trust] indenture, Ms. Barrans
said.
Number 2246
REPRESENTATIVE COGHILL told the members that he has had the
privilege of sitting in front of Ms. Barrans for the last six
years. He said that he is impressed with the good the ACPE is
doing and the returns to the state that have been accomplished.
A number of years ago, the ACPE got behind the curve and Ms.
Barrans has managed not only to get it stable and out of the
red, but has been resourceful in earning more and still doing
good things for Alaska.
CHAIR WILSON agreed that in her first year in the legislature
the ACPE was in the "red." She asked Ms. Barrans if this is
similar to programs in other states.
MS. BARRANS replied that the program is not similar because of
the way the corporation came into existence. No other state has
appropriated out of its general fund $60 million to $80 million
to establish a [student] loan program in unsecured debt. She
said that other state agency higher education authorities are
given small amounts of working capital to begin with. Those
programs are done primarily under a federal education loan
structure that ensures the loans are guaranteed, so the risk on
those loans was very minimal. What was different in Alaska is
that these were unguaranteed loans that were offered to someone
regardless of their credit. For the first wonderful few years
the funds were given away if the students completed their degree
and came back to the state to work, so the mentality of the
borrowers were that it is not really a loan. The difficulty
came in when transitioning from what was viewed as a state give
away program to an entity that had to financially support
itself. There have been no state funds received since 1992.
That was the last year the corporation received any direct
support from the state. It has been a period of recovery. Ms.
Barrans said that FY98 was the last year that the corporation
operated in the red, FY99 was a slight increase in income, and
that has leveled off in recent years.
Number 2129
MS. BARRANS thanked Representative Coghill for his kind words.
She said [the public] understands that this is a good loan
program now. She said the ACPE has used the authority that the
legislature has given it to garnish permanent fund dividends,
leverage occupational and professional licenses, and garnish
people's wages. She said that the current default rate is under
4 percent, so it is obvious that the borrowers understand that
the funds must be paid back. She said that the improved
financial condition of the corporation has allowed the ACPE a
wider variety of payment options for people when borrowers are
struggling financially. For a number of years the ACPE was very
hard-core.
Number 2088
MS. BARRANS told the members that rating agencies have looked at
ACPE balance sheet over the past few years and smiled because
the corporation has over collateralization. She said that the
corporation was not comfortable recommending this plan earlier
because there needs to be a few years of a demonstrated trend.
REPRESENTATIVE WOLF asked how collections of [default loans]
from borrowers who move out of state are handled.
MS. BARRANS commented that there is a slightly lower default
rate for those who are not in Alaska, so it is less of an issue
for the ACPE. When ACPE is unable to collect, then the account
will be transferred to a third party collection agency. The way
the agency is compensated is related to their collections.
REPRESENTATIVE WOLF asked if this policy leads to a compromise
in settlement at a smaller amount. He commented that bankruptcy
[may be used as a tool to avoid payment].
Number 2021
MS. BARRANS responded that one benefit of being an education
loan lender is that these debts are not dischargeable in
bankruptcy proceedings. She added that after a bankruptcy
proceeding it is more likely that the loan will be paid because
many of the borrowers other debts have been discharged. Ms.
Barrans told the members that the ACPE will pursue a debt for 10
years to 15 years. If after that period of time it has been
unsuccessful [in collecting] then there may be a compromise on
the debt if that makes sense, or ACPE may write it off if it is
costing more money to continue to pursue repayment than is
likely to be collected. Ms. Barrans said that the ACPE has
loans [that have been unpaid] for 25 years and these folks are
really surprised when tracked down.
Number 1981
REPRESENTATIVE COGHILL commented that Section 9 of this bill
will also give the corporation more latitude in lien
capabilities. He said he is always uncomfortable when
designating administrative authority to catch people. However,
in this case it is a contractual obligation that is being
addressed.
Number 1951
MS. BARRANS commented that the Department of Law had suggested
that change because if there were a contest in court of the
corporation's process it would not pass muster. She said that
Mary Ellen Beardsley could comment on this point. Ms. Barrans
said that it is important to delineate the corporation's due
process so that it could withstand scrutiny in court.
REPRESENTATIVE COGHILL told the members that there is a very
extensive hearing process, so he does feel comfortable with
this.
Number 1930
REPRESENTATIVE SEATON moved to report CS HB 404, 23-GH2003\D,
Cook, 2/12/04, out of committee with individual recommendations
and the accompanying fiscal notes. There being no objection, CS
HB 404(HES) was reported out of the House Health, Education and
Social Services Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Health, Education and Social Services Standing Committee meeting
was adjourned at 4:10 p.m.
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