Legislature(1999 - 2000)
02/18/2000 01:12 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
February 18, 2000
1:12 p.m.
MEMBERS PRESENT
Representative Joe Green
Representative Norman Rokeberg
Representative Jeannette James
Representative Eric Croft
Representative Beth Kerttula
MEMBERS ABSENT
Representative Pete Kott, Chairman
Representative Lisa Murkowski
COMMITTEE CALENDAR
HOUSE BILL NO. 304
"An Act relating to issuance and sale of revenue bonds to fund
drinking water projects, to creation of an Alaska clean water
administrative fund and an Alaska drinking water administrative
fund, to fees to be charged in connection with loans made from the
Alaska clean water fund and the Alaska drinking water fund, and to
clarification of the character and permissible uses of the Alaska
drinking water fund; amending Rule 3, Alaska Rules of Civil
Procedure; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 233
"An Act granting authority to each municipality to be a debtor
under 11 U.S.C. (Federal Bankruptcy Act) and to take any
appropriate action authorized by federal law relating to bankruptcy
of a municipality."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 304
SHORT TITLE: CLEAN WATER FUND/DRINKING WATER FUND
Jrn-Date Jrn-Page Action
1/21/00 1969 (H) READ THE FIRST TIME - REFERRALS
1/21/00 1969 (H) CRA, JUD, FIN
1/21/00 1969 (H) FISCAL NOTE (DEC)
1/21/00 1969 (H) ZERO FISCAL NOTE (REV)
1/21/00 1969 (H) GOVERNOR'S TRANSMITTAL LETTER
2/08/00 (H) CRA AT 8:00 AM CAPITOL 124
2/08/00 (H) Moved Out of Committee
2/08/00 (H) MINUTE(CRA)
2/09/00 2142 (H) CRA RPT 1DP 2NR 1AM
2/09/00 2142 (H) DP: HARRIS; NR: MURKOWSKI, HALCRO;
2/09/00 2142 (H) AM: DYSON
2/09/00 2142 (H) FISCAL NOTE (DEC) 1/21/00
2/09/00 2142 (H) ZERO FISCAL NOTE (REV) 1/21/00
2/09/00 2142 (H) REFERRED TO JUDICIARY
2/18/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 233
SHORT TITLE: MUNICIPAL BANKRUPTCY
Jrn-Date Jrn-Page Action
5/12/99 1340 (H) READ THE FIRST TIME - REFERRAL(S)
5/12/99 1340 (H) CRA, JUD
2/01/00 (H) CRA AT 8:00 AM CAPITOL 124
2/01/00 (H) Heard & Held
2/01/00 (H) MINUTE(CRA)
2/03/00 (H) CRA AT 8:00 AM CAPITOL 124
2/03/00 (H) Moved CSHB 233(CRA) Out of Committee
2/03/00 (H) MINUTE(CRA)
2/04/00 2086 (H) CRA RPT CS(CRA) NT 5DP 1NR
2/04/00 2087 (H) DP: MURKOWSKI, HALCRO, JOULE,
2/04/00 2087 (H) HARRIS, KOOKESH; NR: DYSON
2/04/00 2087 (H) ZERO FISCAL NOTE (H.CRA)
2/04/00 2087 (H) REFERRED TO JUDICIARY
2/18/00 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
DAN EASTON, Director
Division of Facility Construction & Operation
Department of Environmental Conservation
410 Willoughby Avenue, Suite 105
Juneau, Alaska 99801-1795
POSITION STATEMENT: Presented HB 304 on behalf of the
Administration.
CHESTER JOHNSON
Government Finance Associates
63 Wall Street, 16th Floor
New York City, New York
POSITION STATEMENT: Answered questions on HB 304.
MIKE BURNS, Program Manager
Municipal Grants & Loans
Division of Facility Construction & Operation
Department of Environmental Conservation
555 Cordova Street
Anchorage, Alaska 99501-2617
POSITION STATEMENT: Answered questions relating to HB 304.
DIANA BENNETT, Finance Manager
Anchorage Water and Wastewater Utility
Municipality of Anchorage
P.O. Box 196650
Anchorage, Alaska 99519
POSITION STATEMENT: Testified in support of HB 304 (and its
companion bill, SB 210); did not want any amendments.
DEVEN MITCHELL, Debt Manager
Treasury Division
Department of Revenue
P.O. Box 110405
Juneau, Alaska 99811-0405
POSITION STATEMENT: Testified briefly on HB 304, pointing out that
interest rates are below market rates.
ERNIE MUELLER, Director of Public Works
City & Borough of Juneau
155 South Seward Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 304 in support of whatever can
be done to make these programs more stable and to decrease
dependence on state general funds.
GEORGE E. GORDON, President and CEO
Utility Services of Alaska, Inc.
P.O. Box 80370
Fairbanks, Alaska 99708
POSITION STATEMENT: Testified in favor of HB 304 and amendment
that would open loan programs to private utilities.
CRAIG TILLERY, Assistant Attorney General
Environmental Section
Civil Division (Anchorage)
Department of Law
1031 West 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
POSITION STATEMENT: Testified on HB 304 regarding reason for
change to Rule 3 of the Alaska Rules of Civil Procedure.
JONATHON LACK, Legislative Assistant
to Representative Andrew Halcro
Alaska State Legislature
Capitol Building, Room 418
Juneau, Alaska 99801
POSITION STATEMENT: As staff to the former co-chairman of the
House Community and Regional Affairs Standing Committee, sponsor,
presented HB 233.
ACTION NARRATIVE
TAPE 00-15, SIDE A
Number 0001
REPRESENTATIVE JOE GREEN called the House Judiciary Standing
Committee meeting to order at 1:12 p.m. Members present at the
call to order were Representatives Green, Rokeberg and Kerttula.
Representatives Croft and James arrived as the meeting was in
progress.
HB 304 - CLEAN WATER FUND/DRINKING WATER FUND
Number 0023
REPRESENTATIVE GREEN announced that the first item of business
would be HOUSE BILL NO. 304, "An Act relating to issuance and sale
of revenue bonds to fund drinking water projects, to creation of an
Alaska clean water administrative fund and an Alaska drinking water
administrative fund, to fees to be charged in connection with loans
made from the Alaska clean water fund and the Alaska drinking water
fund, and to clarification of the character and permissible uses of
the Alaska drinking water fund; amending Rule 3, Alaska Rules of
Civil Procedure; and providing for an effective date." [The bill
was sponsored by the House Rules Committee by request of the
Governor.]
REPRESENTATIVE GREEN acknowledged that there wasn't a quorum yet
but said he would begin taking testimony. He called upon Dan
Easton to explain HB 304 on behalf of the Administration.
Number 0061
DAN EASTON, Director, Division of Facility Construction &
Operation, Department of Environmental Conservation (DEC), came
forward, noting the presence of Mike Burns, who manages the DEC's
municipal grant and loan program, and Deven Mitchell, the state
debt manager from the Department of Revenue; he also noted that
online were Craig Tillery, assistant attorney general with the
Department of Law (DOL), and Chester Johnson, financial advisor
under contract to the state. Mr. Easton advised members that the
DEC operates two loan programs through which they make loans to
communities to build drinking water and wastewater projects. At
the heart of those programs are two loan funds: the drinking water
fund and the Alaska clean water fund.
Number 0189
REPRESENTATIVE GREEN noted Representative Croft's arrival, which
resulted in the presence of a quorum.
MR. EASTON continued, referring to posters displayed by Mr. Burns.
He reported that every year DEC becomes eligible for a federal
grant, which DEC matches at a ratio of 5-1. Those monies are
deposited by the legislature into both loan funds; the totals for
both funds are about $15 million a year and $3 million a year. The
department loans this money to communities, which pay it back with
interest. The department also earns interest on money waiting to
be loaned out, or which has been returned and is waiting to be
loaned out again.
REPRESENTATIVE GREEN asked whether the current rates being charged
and received are about even, around 4.5 percent.
MR. EASTON suggested Deven Mitchell could better answer that. He
said he believes the DEC makes 5 to 6 percent on its investments,
whereas they charge communities about 4.4 percent in interest.
Number 0303
MR. EASTON explained that HB 304 has two parts. The first part,
Sections 1 through 17, adds the drinking water fund to the
legislation that currently gives the DEC bonding authority for the
clean water fund. The reason is fairly straightforward, he said,
mentioning the Environmental Protection Agency (EPA) and noting
that $3 million in state match money comes in as a grant; that is
general fund money. Mr. Easton said the DEC doesn't have to do
that; another option is to actual sell bonds and use the proceeds
as the match. They can then take interest earnings out of the fund
and retire that bond debt. This is relatively short-term; the DEC
wouldn't incur any debt other than for a relatively short period of
time. It is a "shorter bonding mechanism that just basically gets
us around having to contribute general funds year after year after
year to the fund," Mr. Easton said. "Now, contributing general
funds is a good thing," he added. "It makes a fund grow fast. But
these funds have grown to a point where we can afford to do that."
REPRESENTATIVE GREEN asked whether the federal government allows
that to be called the state match.
MR. EASTON affirmed that. He pointed out that in the clean water
fund, where the DEC has this authority, they are already proposing
this in the fiscal year 2001 budget. Last year, roughly $1.5
million in general funds came in. This year, there won't be
general funds; rather, bond receipts will come in. However, the
DEC lacks bonding authority to do that in the drinking water fund.
Number 0481
REPRESENTATIVE GREEN asked whether this is to replace the EPA grant
or whether the EPA grant will go up if this is approved.
MR. EASTON answered that the EPA grant will keep coming at the same
rate it has, until it stops.
REPRESENTATIVE GREEN asked whether the DEC knows when that will be.
MR. EASTON indicated the EPA has told the DEC the clean water grant
will stop in fiscal year 2003, and the drinking water grant will
stop in 2008. Currently, he explained, the DEC is allowed to take
a little of this EPA grant, which is how they pay for staff. There
are no general funds in the DEC's operating budget for this
program. When those grants stop, they won't have a way to continue
to maintain the program. Therefore, the second part of HB 304
gives the DEC a mechanism to pay for program operating costs.
MR. EASTON, still referring to the posters, further explained that
HB 304 would allow the DEC to split the repayment stream from
communities repaying loans. Instead of returning all the money to
the funds, the DEC could use a small percentage to pay for
operating costs. That way, when the EPA grant funds stop, the DEC
won't have to ask the legislature for general funds. What HB 304
gives the DEC authority to do is done in many other states. It
makes an administrative fund for each loan fund, and two accounts.
The payments come from the community into an income account. Every
year, through the capital budget process, the DEC would request
that the legislature appropriate funding from that income account
to the operating account. And then, through the operating budget
process, the DEC would ask to transfer money from the operating
account into its operating budget.
Number 0666
MR. EASTON drew attention to the zero fiscal note. He explained
that it is zero in terms of operating costs, and it reflects a
switch from general funds to revenue bond receipts.
REPRESENTATIVE GREEN noted the arrival of Representative James.
Number 0714
REPRESENTATIVE ROKEBERG told fellow members he'd had meetings with
representatives from private utilities in the Fairbanks area, who
had requested that the bill be amended to add public utilities with
certificates of need as eligible for this loan program. He asked
whether Mr. Easton believes the Administration would have any
objections to amending the bill to include private entities that
would qualify under federal requirements.
MR. EASTON replied that he didn't know, indicating he'd met with
the same people but only the day before. There hadn't been time to
analyze what it would mean, he said, let alone time to talk with
the Governor's office about it. His personal immediate reaction,
however, is a desire to understand exactly who the DEC would loan
to under such an amendment. Right now, they just loan to
municipalities. It is a relatively simple program to administer,
with a very low risk. There aren't a large number of clients. It
is very easy to do credit checks because the municipalities have
established credit ratings and are audited. They are an easy group
to loan to. Furthermore, there is a zero default rate.
MR. EASTON pointed out that it could be far more complex and time-
consuming if the DEC winds up loaning to a lot of privately owned
utilities, depending on where the line is drawn. "That doesn't
mean it's bad," he added. "It's just something that I would like
to understand better." Another concern is increased demand on the
loan. A certain size of "pie" already is eaten up entirely by
municipalities. It is a question of whether this would take a big
slice of pie away from the communities or a small one, and a
question of how communities feel about sharing the loan fund. On
the positive side, some smaller privately owned [entities] may have
wastewater or drinking water problems; perhaps by making them a
beneficiary of this program, the DEC could actually go further to
improve drinking water and wastewater quality.
Number 0892
REPRESENTATIVE ROKEBERG acknowledged that the proposed amendment
was brought to him by a larger private entity in the Fairbanks
North Star Borough. He said there are significant numbers of small
private water systems, however, particularly in Southcentral
Alaska, that provide service to a large number of people. Although
typically incorporated, they are basically nonprofit entities or
small profit making entities - almost homeowners' associations in
terms of their formatting sometimes - which have difficulty
sometimes obtaining financing through conventional methods. He
suggested those may have the same problems with water systems that
small villages or communities have. Indicating he would ask the
assistant attorney general online a question later, he voiced his
own understanding that the federal statutory framework allowing
this program does provide for that.
Number 0970
REPRESENTATIVE GREEN asked how the DEC would handle the extra
requests if this passed.
MR. EASTON pointed out that the DEC already has more demand for
loans than they give out. They solicit applications; prioritize
them, basically, according to need and the health impact; and make
loans according to that.
Number 1036
CHESTER JOHNSON, Government Finance Associates, testified via
teleconference from New York City, specifying that his company acts
as financial advisors to the Alaska State Bond Committee and
provides some services under contract with the DEC on the both the
state revolving funds (SRFs): the clean water and drinking water
funds. He informed members that he had been asked to be available
for questions.
REPRESENTATIVE GREEN asked whether Mr. Johnson had anything to add
to Mr. Easton's explanation.
MR. JOHNSON commended Mr. Easton for his presentation. He
emphasized that this program, characterized as a revolving loan
fund, has been successful across the nation. Although it was
initially established for clean water, only recently was the
drinking water program included in order to expand the ability to
provide local units with low-cost funding for drinking water
purposes. He pointed out that, as outlined, use of this structure
- which allows bond finance to substitute for general fund
appropriations in meeting the state match - has both operational
and financial efficiencies that should be favorable to the state
itself as it goes about deciding on general fund priorities.
MR. JOHNSON again referred to the program's implementation in other
states. He said the program is noncontroversial and shouldn't
create any concerns, either at the rating agencies, with respect to
the state's rating, or operationally, with respect to the way that
the DEC handles its debt finance program.
Number 1237
REPRESENTATIVE CROFT asked what happens if this program is extended
to private utilities or very small "almost homeowner" organizations
that have water issues. He further asked Mr. Johnson how that
would change his job as the bond advisor.
MR. JOHNSON answered that obviously it makes it a little more
complicated. He specified that he wasn't making a recommendation
here. Noting that there have been instances where private water
companies have been involved in other states in an SRF program, he
said it requires a little more complicated credit analysis. In
addition, it may involve the creation of different types of bond
programs. In other states, there have been established separate
bond contracts, for example, that would involve lower-rated
entities, so that the stronger program wouldn't be adversely
impacted. He pointed out that HB 304 allows the state bond
committee to create bond resolutions with investors, through the
use of a trustee, to secure debt financing for the purposes of the
legislation.
MR. JOHNSON acknowledged it is early in the game, voicing the need
to look at credit arrangements for other borrowers that would be
included over and above the municipalities. He said it may well be
that separate resolutions would have to be created for entities
that would not necessarily meet the same credit criteria that a
normal borrower would. That issue has been addressed by the rating
agencies, which are on record as stating "that it does make some
sense ..., for credit entities that do not sort of fit the pool,
that it's necessary to create bond resolutions separate and
distinct from the normal bond resolution for the normal program."
Number 1394
REPRESENTATIVE CROFT expressed his understanding that separate bond
resolutions would be needed because otherwise, to the extent there
were any defaults in those others, those defaults would affect the
bonding of every municipality.
Mr. JOHNSON affirmed that, saying that is the primary reason for
having that structure in place. He again indicated he wasn't
making a recommendation; rather, that is how a number of states
have addressed the problem.
Number 1413
REPRESENTATIVE ROKEBERG asked whether these are "full faith and
credit" pledges of the state or are in the form of a revenue bond.
He said his understanding was that this would put pools of
different loans into one bond or a group of bonds.
MR. JOHNSON said that is correct. He clarified that his comments
had dealt with the basic credit integrity of the existing program
for the DEC. This particular structure doesn't necessarily affect
the state's credit, except to the extent of budgetary relief
because general funds won't have to be appropriated for the state
match. Regarding the financing structure, that wouldn't impact on
the state's credit, with one caveat: the state's debt management
operation, as executed through the state bond committee, is viewed
as a management issue for the state. Even if programs aren't
directly related to the state's credit - that is, direct general
funds, security or through a pledge of the general funds - it is
highly important, as the state meets with the rating agencies, that
they can make it clear that the security and credit strength is
sound which supports operationally important programs such as those
involving clean water and drinking water.
Number 1525
REPRESENTATIVE ROKEBERG asked for confirmation that these are
revenue bonds and not general obligation (GO) bonds.
MR. JOHNSON agreed that they fall within the general category of
revenue bonds; that is, the sources of payment would consist of
repayments of loans made to local units, in the larger sense.
Admittedly, the funds that would be used for the state match in
this instance essentially exist in the form of earnings. The
precedent is using earnings that exist to substitute for the
borrowings. He said those are considered revenue bonds, as opposed
to a general obligation or a general fund obligation of the state.
Number 1607
REPRESENTATIVE ROKEBERG said he isn't sure whether the state would
pool the loans or whether there is more than one issuance a year.
He questioned the necessity of separate resolutions.
REPRESENTATIVE CROFT pointed out that even though it isn't a
general obligation bond, revenue bonds have a history and are rated
because of that. If pooled together, a default on one would raise
the default rate from zero to "small."
REPRESENTATIVE ROKEBERG asked why they would need separate
resolutions, though.
Number 1648
REPRESENTATIVE GREEN announced, "We have the answer." He suggested
debating this after hearing testimony. Referring to Mr. Easton's
testimony that the DEC allocates these [loans] based on need, he
asked whether that consideration would include the fact that a
group providing service to 50 people, for example, might not be as
stable as a community of 100 to 300 people.
Number 1715
MIKE BURNS, Program Manager, Municipal Grants & Loans, Division of
Facility Construction & Operation, Department of Environmental
Conservation (DEC), came forward, answering that the DEC's priority
criteria are generally prescribed by the EPA. Among those
criteria, credit risk considerations are always a factor.
REPRESENTATIVE GREEN pointed out that it might be a consideration
of whether this proposed amendment might be acceptable. He
surmised that the smaller the entity, the less likely it might be
to get a loan because of an inability to repay it.
Number 1750
REPRESENTATIVE CROFT said he thinks it is a good point. He
requested confirmation that without the amendment, the credit
analysis would be relatively easy, because for established
municipalities the DEC would just have to look for something out of
the ordinary.
MR. EASTON and MR. BURNS affirmed that.
Number 1770
REPRESENTATIVE JAMES asserted that creditworthiness would be based
on the entity and its past history, not its size.
REPRESENTATIVE GREEN clarified that he wasn't implying who might
have the better rating. However, there is more need for the loan
fund than there is availability. His concern is whether adding
groups would further adversely impact the availability for
municipalities. From testimony, he said, he understands that the
probability - though not the certainty - is that municipalities
would still come ahead of a new group lacking a track record, for
example.
Number 1822
REPRESENTATIVE ROKEBERG asked whether the smaller communities now
served by the DEC all have a tax base.
MR. EASTON affirmed that the beneficiaries of the loan programs are
all communities with a tax base, generally the size of Wrangell or
Petersburg on up.
REPRESENTATIVE ROKEBERG commented that a significant amount of
"grant work" involves areas without a tax base in the unorganized
borough. He requested confirmation that generally those
communities wouldn't be participating and wouldn't have the
wherewithal to pay off the loans.
MR. EASTON affirmed that.
Number 1865
REPRESENTATIVE ROKEBERG said there is a cap of $150 million for
each program, and a $15 million annual cap in HB 304. He asked how
much the DEC writes annually now.
MR. BURNS answered that they haven't actually issued any bonds yet,
having just received authority a very few years ago. As for loans,
the portfolio of loans to all of communities, for both programs, is
$170 million at this time.
REPRESENTATIVE ROKEBERG asked whether there is a split between
clean water and drinking water.
MR. BURNS answered that "drinking water" is a relatively new
program. The split now is $135 million through "clean water" and
$35 million through "drinking water."
Number 1915
REPRESENTATIVE ROKEBERG asked what the average interest rate or the
cost of the loans is to the municipalities.
MR. BURNS specified that the average interest rate on the entire
portfolio is right at 4 percent.
REPRESENTATIVE GREEN expressed his understanding that $170 or $175
million is the total fund, which is all out working.
Number 1941
REPRESENTATIVE ROKEBERG remarked that he thought he'd seen in HB
304 a $150 cap on each program.
MR. BURN replied, "That is the ... bonding limit that we would be
limited to, to go out and get extra bond proceeds over and above
... the 'cap' grants, the state match, of which we have chosen, for
several reasons, not to ... proceed with at this point in time. ...
What we're choosing to do, instead, is to bond for the state match
in that method."
REPRESENTATIVE ROKEBERG asked whether, with this grant of
authority, the DEC would be able to bond more on a stand-alone
basis if there were enough demand, going beyond the federal match,
particularly after the federal match stopped. He also asked
whether, to help meet the demand, the DEC conceivably would go into
the marketplace, bond that amount of money, and then turn around
and lend it.
MR. EASTON answered that it would certainly be an option, but one
the DEC hasn't felt the need to utilize. The bonding authority
would let the DEC use this mechanism to finance its match. It
would also provide the DEC an option for adding cash to the loan
funds, if it was ever decided, collectively, to do that.
REPRESENTATIVE GREEN noted that Craig Tillery from the Department
of Law was online to answer questions. He then called upon Diana
Bennett.
Number 2038
DIANA BENNETT, Finance Manager, Anchorage Water and Wastewater
Utility (AWWU), Municipality of Anchorage, testified via
teleconference from Anchorage, noting that she has worked closely
with the DEC during her 12 years in that position. She urged
passage of HB 304 and its companion bill, SB 210, which authorize
the DEC to sell bonds as a means of capitalizing the Alaska
drinking water fund and to designate a portion of the interest
charged on both the drinking water and clean water loans to help
pay for program operations. She stated:
Speaking on behalf of AWWU, we declare the state's
revolving loan fund programs to be a total success for
our community. AWWU has been a participant of the clean
water loan program, which funds capital projects for the
wastewater utility, since the program's inception in
1989. When the drinking water program was funded in
1998, the utility became one of the first municipalities
to submit a loan request for a water capital project.
Traditionally, our capital programs are funded through
long-term debt, with very little coming from current
operations. We use this approach to keep rate increases
to a minimum, delaying and deferring any increase in
customer rates to the latest possible date. In fact,
there has not been a water rate increase at AWWU since
1991, and not since 1992 for wastewater. We owe a great
deal to the savings generated through the use of the
revolving loan programs for this lack of rate increases.
The cost savings resulting from the SRFs, as compared to
traditional revenue or general obligation bonds, are
there for the ratepayer because [DEC] has worked with
communities to develop a program with community benefits
as their number one goal. [DEC] has actively solicited
input from the program users to help define and enhance
benefits while still maintaining the program viability.
Savings are generated because the program is simple,
flexible and attractive.
This utility has initiated 18 loans with the state
revolving loan program, with actual loan disbursements at
the moment totaling in excess of $21 million. Due to the
lower interest rates and the deferred accruals and
payment plans, AWWU has realized annual savings of
between a half million and one and a half million
dollars. This is a very important program for our
utility.
The proposed program change to allow bonding authority
for the drinking water program appears to me to be a
safe, reliable, financially sound method of continuing a
program that has proven benefits for Alaskan communities.
In addition to the bonding authority change, which will
save state operating dollars, the proposed legislation
will save more state operating dollars by using dollars
already in the system to support the program's operating
expenses.
I have reviewed the state's financial forecasts and can
see little downside to this proposal. This change, along
with the regulation changes, which decrease the interest
rates associated with the loans, will slow the growth of
the funds only minimally. The revolving fund concept
will remain intact, with funds continuing to be available
for communities to finance future projects. These
proposals are fiscally sound and add to the strength of
an already successful program.
It should be noted that since its inception, the state
DEC ... has not only not had a default on any loans but
there's never even been a late payment. And I think this
demonstrates the communities' commitment to support a
program with so many benefits to the citizens. ...
In summary, AWWU, as a publicly owned utility, part of
Municipality of Anchorage, believes this program is very
important. It funds a major part of our capital program
and helps keep rates low. Privately owned companies, who
are profit-oriented, have other financing options not
available to public entities. To allow privately owned
companies to use government-subsidized funds puts
government entities at a disadvantage. We don't want the
program to suffer. The need for this program is
documented. And we would hope that the same funding
level remains available for municipally owned utilities.
We encourage you to pass this legislation without
amendments or substitutions. Thank you for your time and
attention.
Number 2250
DEVEN MITCHELL, Debt Manager, Treasury Division, Department of
Revenue, came forward to expanded on testimony from the DEC that
the interest rates being paid are close to 4 percent. He pointed
out that those rates are actually below market rates, resulting in
the savings described in Ms. Bennett's testimony from Anchorage.
That would hold true across other communities even more so, Mr.
Mitchell noted, because utilities in smaller communities wouldn't
have the same kind of credit strength that Anchorage has.
Number 2288
ERNIE MUELLER, Director of Public Works, City & Borough of Juneau,
came forward and testified as follows:
We operate the water and wastewater ... utilities here,
and we have been recipients of loans from the Department
of Environmental Conservation for about the last 10 or 11
years, first with the clean water program, and we now
have ... our first loan application in with them for the
drinking water program. ... As the folks from Anchorage
pointed out, this doesn't just benefit the cities but it
benefits our individual ratepayers.
We are an enterprise activity, which means that our
ratepayers pay all of our expenses including our debt
service. Even if we have general obligation bonds, which
we do, our ratepayers pay off those general obligation
bonds. So, I'd like to mention, in fact, one particular
way that we've used this program to ... directly save our
ratepayers money, and that is in the use of local
improvement districts [LIDs] to expand our service to
currently unserved areas. If you're familiar with the
local improvement districts, they are a system that's set
up by which the property owners that benefit from the
extension of the utilities actually pay a portion or all
of the cost of extending that utility. What we have done
is we have used the state's low-interest money to finance
those property owners' LID payments.
So they have directly taken advantage of that low-
interest loan, and it's saved those property owners, in some cases,
probably $1,000 to $2,000 in interest ... that they would have
[paid] over the course of their LID payments. So it's really
helped them, as individuals, to be able to afford to form an LID
and to hook up to, ... in our case, sewer facilities in areas where
we'd [have] had a hard sell, to tell people that you've got to pay
10 percent interest for ten years to pay back this thing. And
that's the interest rate that we were charging. So, telling them
that they could get by with 4 percent was a big selling point for
us, in doing this.
This bill, in our opinion, provides a lot of long-term
stability to this loan program. We anticipate that we'll
be borrowing money through this program as long as the
state will let us do so. ... It's not only been a good
program in terms of the low interest and the ready
availability of funds, but it's also been an
administratively well managed and simple program to work
with. We handle all the paperwork at the city end. We
don't have to hire bond counsel. We don't have to hire
financial institutions. All that work's done between the
state and ourselves, and it's very simple to manage.
One of the things that people don't realize is we save a
lot of direct money by having this particular program
financed by the state, and that is, when we have a
project that goes forward - like a water reservoir, for
example, that's financed by this operation - DEC's
administrative program actually does all the plan review
and the supervision ... of those engineering documents.
And we don't have to pay for that. That's part of how
they administer the program. If we did that with private
debt financing, we'd have to pay DEC to do that program
plan review for us.
So it's really saved us a lot of money. ... As the people
in Anchorage say, it helps us keep our rates down for our
ratepayers. ... So we're really strongly in support of
whatever can be done to not only make this program more
stable in the long run, ... but to make it less dependent
on state general fund money, which is ... a primary
intent of this legislation ....
Number 2450
GEORGE E. GORDON, President and CEO, Utility Services of Alaska,
Inc., came forward, noting that his company provides administrative
and customer services to two regulated private utilities in
Fairbanks: College Utilities Corporation and Golden Heart
Utilities. He told members there are many small private regulated
water and wastewater systems providing a valuable service
throughout the state, including the Fairbanks area. He stated that
he speaks in favor of both the bill and the amendment which he
believes will be offered.
TAPE 00-15, SIDE B
Number 0001
MR. GORDON expressed his belief that if companies aren't
creditworthy, they shouldn't receive loans. He doesn't believe
that it would require separate handling, because it isn't the
intent to ask for loans to be made to noncreditworthy entities.
These are simply smaller water companies - many in the Southcentral
area and some in Fairbanks or elsewhere in the state - that simply
can't get straight bank financing, which is too expensive and has
too short a payback time.
MR. GORDON voiced his understanding that the intent of Congress was
that Safe Drinking Water Act revolving funds be made available to
private utilities. In fact, 34 states have changed their rules,
regulations and/or statutes to allow this kind of lending. Mr.
Gordon specified that he was speaking in approval of a change that
would allow the loans to qualified private water and wastewater
utilities which are regulated by the Regulatory Commission of
Alaska; that way, the lower rates on these loans could accrue to
the ratepayers of the private utilities, especially the smaller
ones in the state.
Number 0061
REPRESENTATIVE ROKEBERG asked Mr. Gordon how many customers his
firm serves.
MR. GORDON answered that College Utilities Corporation provides
service to "approximately 1,850 customers, about 12-14,000 people,"
whereas Golden Heart Utilities has "6,000 customers, approximately
35-40,000 population." He said that is 50-55,000 people in the
greater Fairbanks area.
Number 0086
REPRESENTATIVE KERTTULA asked whether Fairbanks itself gets these
types of loans now.
MR. GORDON answered that the City of Fairbanks' publicly owned
utility no longer exists. It was privatized two and a half years
ago, with the water and wastewater services now provided a private
utility. They also had privatized electricity and telephone
service at the same time. All utilities are handled either by a
cooperative or private concerns, which are ineligible for the loan
funds in question. This legislation excludes private concerns, and
they are seeking to have that changed.
REPRESENTATIVE KERTTULA asked Mr. Gordon whether he has any
information on the 34 states that have allowed this. For example,
how long have they allowed it? How have the programs worked? Are
those programs the same as this would be under HB 304?
MR. GORDON replied that he thinks some of the states had allowed
"private loans" in the beginning, especially in the East, where
there are many more private water utilities. The National
Association of Water Companies, of which his companies are members,
track that; he doesn't believe there have been any problems with
making loans to private entities. "You simply use appropriate
credit information and don't make loans to people that can't
qualify," he restated. "So, I think there's been success. And I
think that was the intent of the Congress."
Number 0141
REPRESENTATIVE ROKEBERG asked Mr. Gordon whether his company does
wastewater management also.
MR. GORDON answered, "Water and wastewater, both."
REPRESENTATIVE ROKEBERG asked, "Can you give the committee an idea
of a ballpark savings, and how many basis points, if you were
allowed to participate in this program doing conventional financing
and the state subsidized loan program?"
MR. GORDON replied that their conventional bank financing is at
prime plus 1.5 percent, which currently would be 9.5 or 10 percent.
They also have a recent tax-free AIDEA [Alaska Industrial
Development and Export Authority] "borrowing" at 6.5 percent. If
these loans [under HB 304] are at 4 percent, that is a 2.5 percent
difference. He pointed out that lowering interest costs benefits
ratepayers, not investors. It flows directly as a pass-through
expense to the ratepayers, whether they be municipal or private.
REPRESENTATIVE ROKEBERG stated, "Because you're a regulated
utility."
MR. GORDON affirmed that.
Number 0184
REPRESENTATIVE CROFT surmised that it passes through because a
regulated utility can only make so much profit, which is regulated
by the cost base.
MR. GORDON replied, "The profit is based upon an opportunity to
make a return on what you have invested, not what you have
borrowed."
Number 0199
REPRESENTATIVE GREEN thanked Mr. Gordon and asked whether anyone
else wished to testify. He then closed public testimony.
REPRESENTATIVE ROKEBERG noted that he had two proposed amendments
which he would offer to the committee. He explained that there
were two amendments because the drafter had said the water and
clean water Acts had to be handled separately because of the
titles. The intention is to provide that certified and regulated
public utilities in Alaska be included in these loan programs.
Number 0238
REPRESENTATIVE ROKEBERG made a motion to adopt Amendment 1 (1-
GH2031\A.1, Cook, 2/18/00), which read:
Page 8, line 23:
Following "assistance to":
Insert "organizations that provide water service under a
certificate of convenience and necessity from the former
Alaska Public Utilities Commission or the Regulatory
Commission of Alaska and to"
Delete "municipal"
Page 9, line 18:
Delete "A"
Insert "An organization that provides water service under
a certificate of convenience and necessity or a"
REPRESENTATIVE GREEN noted that there was no longer a quorum.
REPRESENTATIVE ROKEBERG withdrew his motion.
Number 0313
REPRESENTATIVE GREEN noted that there now was a quorum present.
REPRESENTATIVE ROKEBERG again made a motion to adopt Amendment 1.
Number 0321
REPRESENTATIVE CROFT objected. He referred to testimony and said
there is no legal bar to doing these types of subsidies to private
business. However, the main question is a fiscal one. This would
affect both Juneau and Anchorage, as testimony indicated. For that
reason, it seems more appropriate to delay it for a Finance
[Committee] discussion. The judicial matter, he pointed out, is
that it could be done but doesn't have to be done. The fiscal
question is whether it is appropriate. He pointed out that
testimony indicates there are other options for private industry
that aren't open to government. This would amount, in his opinion,
to a government subsidy that isn't directly under the scope of the
current committee; more importantly, it is improper.
Number 0374
REPRESENTATIVE JAMES disagreed, saying the beneficiaries aren't
necessarily the private entities but the ratepayers. Therefore,
she believes this is a policy decision and won't cause any
different fiscal impact to the state. She urged support of
Amendment 1.
REPRESENTATIVE GREEN requested a roll call vote. However, members
either had already departed or departed after the request for a
roll call. Therefore, he canceled the request, as there no longer
was a quorum present.
Number 0440
REPRESENTATIVE ROKEBERG asked whether the court rule addressed in
the bill would need to stay in.
REPRESENTATIVE GREEN pointed out to Craig Tillery, who was online,
that the bill would require an amendment to Rule 3 of the Alaska
Rules of Civil Procedure. He asked whether broadening the scope
would affect that.
Number 0466
CRAIG TILLERY, Assistant Attorney General, Environmental Section,
Civil Division (Anchorage), Department of Law, answered that the
rule amendment is required simply because the bill adds drinking
water into the clean water statute. It is already a requirement in
the clean water statute that actions be brought in the First
Judicial District in Juneau. His understanding is that it is being
done essentially for the convenience of the court because that is
where the parties are likely to be. In bringing drinking water
into the clean water statute, necessarily that came under this
requirement. "Therefore, we had to call it a change to the court
rules," Mr. Tillery explained. "To not do that would set up
different venues for the two different types of actions, which, I
think, would be somewhat confusing. It wouldn't be impermissible,
but it would seem to me that the way it's set up now would be more
consistent and easier to apply."
Number 0511
REPRESENTATIVE ROKEBERG asked whether the only substantive change
is in Section 20 regarding the venue. He recalled that he himself
had sponsored a bill a couple of years ago that spoke to this
section of law.
MR. TILLERY elaborated on his earlier response. He said the
important court rule amendment is to Rule 3, regarding change of
venue. Section 11 changes AS 37.15.583(a) by adding in AS
46.03.036, regarding drinking water, to the current clean water
rule. Subsection (b) of [AS 37.15.]583 states that a proceeding
under (a) of this section may be conducted only in the superior
court of the State of Alaska, First Judicial District of Juneau.
Essentially, adding in drinking water along with clean water in
that one statutory section necessarily brings it under subsection
(b). The change in court rule is to conform the two.
Number 0612
REPRESENTATIVE GREEN announced that HB 304 would be held over.
[The motion to adopt Amendment 1 was still pending with an
objection having been stated.]
HB 233 - MUNICIPAL BANKRUPTCY
REPRESENTATIVE GREEN brought before the committee HOUSE BILL NO.
233, "An Act granting authority to each municipality to be a debtor
under 11 U.S.C. (Federal Bankruptcy Act) and to take any
appropriate action authorized by federal law relating to bankruptcy
of a municipality." [Before the committee was CSHB 233(CRA).]
Number 0646
JONATHON LACK, Legislative Assistant to Representative Andrew
Halcro, Alaska State Legislature, came forward to explain HB 233.
He noted that Representative Halcro was a co-chairman at the time
of the House Community and Regional Affairs (CRA) Standing
Committee, which had sponsored the bill the previous year.
Representative Halcro had agreed to continue carrying the bill
although he is no longer co-chairman of that committee.
MR. LACK informed members that in 1994 the U.S. Congress changed
the federal bankruptcy code to require states to give local
governments specific authority to seek protection under Chapter 9
of the federal bankruptcy code. Although most states have granted
this ability, Alaska has not. This bill will bring Alaska into
compliance with those 1994 changes.
MR. LACK pointed out that smaller communities are often in a
financially tenuous position, meeting expenses on a month-to-month
basis. Federal bankruptcy protection might be required by a local
community government when there has been mismanagement, for
example, or when an accident occurs in a smaller community that is
under-insured. In Alaska, many smaller communities have a "strong
city manager" form of government. The desire is to not create a
situation where creditors would come in and start "cherry-picking"
community assets - for example, a fire trucks or ambulance -
thereby leaving a community without emergency care or whatever may
be necessary. Therefore, HB 233 would allow a community to go into
federal bankruptcy court, seek protection and reorganize its debts.
Number 0732
REPRESENTATIVE GREEN requested a brief overview of the protections
afforded by Chapter 9.
MR. LACK explained that Chapter 9 is generally available for
individuals to reorganize their debts. For municipalities and
local governments, the reorganization does not, in most cases,
allow a local government to extinguish its debts. There are four
options that a local government would have under Chapter 9 to
reorganize its debts and basically force creditors to come to the
table to work out a payment plan or reduce the debt. Generally,
however, it doesn't allow the discharge of debts unless creditors
are participating in bad faith negotiations in front of the
bankruptcy court.
Number 0783
REPRESENTATIVE ROKEBERG inquired whether the congressional action
had resulted from the Orange County "fiscal debacle."
MR. LACK answered that ironically the change in federal law
occurred in 1994 and then Orange County went bankrupt. The federal
court told Orange County that California hadn't provided specific
authority, however. In order for Orange County to seek bankruptcy
protection, California had to go back in and do what HB 233 does.
It exemplifies why HB 233 needs to be passed.
Number 0825
REPRESENTATIVE GREEN noted that apparently there were no more
testifiers on HB 233; he closed public testimony and indicated
there was no quorum present. [HB 233 was held over.]
HB 304 - CLEAN WATER FUND/DRINKING WATER FUND
Number 0023
REPRESENTATIVE ROKEBERG again briefly brought up HOUSE BILL NO.
304, "An Act relating to issuance and sale of revenue bonds to fund
drinking water projects, to creation of an Alaska clean water
administrative fund and an Alaska drinking water administrative
fund, to fees to be charged in connection with loans made from the
Alaska clean water fund and the Alaska drinking water fund, and to
clarification of the character and permissible uses of the Alaska
drinking water fund; amending Rule 3, Alaska Rules of Civil
Procedure; and providing for an effective date."
REPRESENTATIVE ROKEBERG asked that committee staff check with the
Department of Environmental Conservation about a position on his
own proposed amendments [Amendment 1 being the only one formally
offered that day, to which an objection had been stated]. He
acknowledged that the amendments may have caught the DEC by
surprise.
REPRESENTATIVE GREEN said that is a good point. He then noted the
committee staff's acknowledgment of the request. [HB 304 was held
over.]
Number 0916
REPRESENTATIVE GREEN adjourned the House Judiciary Standing
Committee meeting at 2:22 p.m.
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