03/27/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB175 | |
| HB125 | |
| HB74 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 175 | TELECONFERENCED | |
| *+ | HB 125 | TELECONFERENCED | |
| += | HB 74 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 27, 2013
3:24 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Lora Reinbold, Vice Chair
Representative Mike Chenault
Representative Bob Herron
Representative Charisse Millett
Representative Dan Saddler
Representative Andy Josephson
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 175
"An Act allowing, under certain conditions, a property or
casualty insurer to provide policies and endorsements to an
insured by posting the policies and endorsements on the
insurer's Internet website."
- MOVED CSHB 175(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 125
"An Act prohibiting a health care insurer from denying coverage
for an additional limited quantity of prescription topical eye
medication under certain circumstances."
- HEARD & HELD
HOUSE BILL NO. 74
"An Act relating to development project financing by the Alaska
Industrial Development and Export Authority; relating to the
dividends from the Alaska Industrial and Export Authority;
authorizing the Alaska Industrial Development and Export
Authority to provide financing and issue bonds for a liquefied
natural gas production system and natural gas distribution
system; and providing for an effective date."
- MOVED CSHB 74(L&C) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 175
SHORT TITLE: ELECTRONIC POSTING OF INSURANCE POLICIES
SPONSOR(s): LABOR & COMMERCE
03/18/13 (H) READ THE FIRST TIME - REFERRALS
03/18/13 (H) L&C
03/27/13 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 125
SHORT TITLE: TOPICAL EYE MEDS PRESCRIPTION REFILLS
SPONSOR(s): HOLMES
02/18/13 (H) READ THE FIRST TIME - REFERRALS
02/18/13 (H) L&C
03/27/13 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 74
SHORT TITLE: AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/16/13 (H) READ THE FIRST TIME - REFERRALS
01/16/13 (H) L&C, FIN
02/08/13 (H) L&C AT 3:15 PM BARNES 124
02/08/13 (H) Heard & Held
02/08/13 (H) MINUTE(L&C)
03/04/13 (H) L&C AT 3:15 PM CAPITOL 106
03/04/13 (H) Mtg Recess & Reconvene 8:00 AM, 3/5/13
03/05/13 (H) L&C AT 8:00 AM BARNES 124
03/05/13 (H) -- Meeting Continued from 3/4/13 --
03/11/13 (H) L&C AT 3:15 PM BARNES 124
03/11/13 (H) Heard & Held
03/11/13 (H) MINUTE(L&C)
03/13/13 (H) L&C AT 3:15 PM BARNES 124
03/13/13 (H) Heard & Held
03/13/13 (H) MINUTE(L&C)
03/15/13 (H) L&C AT 3:15 PM BARNES 124
03/15/13 (H) Heard & Held
03/15/13 (H) MINUTE(L&C)
03/21/13 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/21/13 (H) <Bill Hearing Canceled>
03/25/13 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/25/13 (H) Scheduled But Not Heard
03/27/13 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/27/13 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
KONRAD JACKSON, Staff
Representative Kurt Olson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 175 on behalf of the sponsor,
the House Labor and Commerce Committee, of which Representative
Olson is the chair.
JOSH ZIELASKIESWISC, Attorney
Progressive Insurance
Mayfield Village, Ohio
POSITION STATEMENT: Testified during the discussion of HB 175.
REPRESENTATIVE LINDSEY HOLMES
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor during the discussion
of HB 125.
CHRISSY MCNALLY, Staff
Representative Lindsey Holmes
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the sponsor of
HB 125, Representative Lindsey Holmes.
MICHAEL LEVITT
American Academy of Ophthalmology
San Francisco, California
POSITION STATEMENT: Testified during the discussion of HB 125.
SHEELA TALLMAN, Senior Manager
Legislative Policy
Premera Blue Cross/Blue Shield of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 175.
TED LEONARD, Executive Director
Alaska Industrial Development & Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 74.
MARK R.DAVIS, Deputy Director
Infrastructure Development
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 74.
ACTION NARRATIVE
3:24:49 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:24 p.m. Representatives
Reinbold, Josephson, Herron, Saddler, and Olson were present at
the call to order. Representatives Millett and Chenault arrived
as the meeting was in progress.
HB 175-ELECTRONIC POSTING OF INSURANCE POLICIES
3:25:11 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 175, "An Act allowing, under certain conditions,
a property or casualty insurer to provide policies and
endorsements to an insured by posting the policies and
endorsements on the insurer's Internet website."
3:25:27 PM
KONRAD JACKSON, Staff, Representative Kurt Olson, Alaska State
Legislature, stated that HB 175, sponsored by the House Labor
and Commerce Standing Committee, would permit insurers to
provide standard property and casualty insurance policies and
endorsements to those insured by posting the policies and
endorsements on the insurer's website. Current law requires
companies to mail or deliver policies in all 50 states. The
bill would add posting as a means of access to policies and
endorsements. Posting property and casualty insurance policies
on insurer's websites will allow insurers to dramatically reduce
the number of bulky policy contracts and endorsements they mail
to customers each year while improving the accessibility and
usefulness of the documents. He referred to an example of an
insurance policy in members' packets from Progressive Insurance.
Again, the documents are typically lengthy ones so posting
represents a direct savings to the consumer and the company.
The intent of the bill is to post policies that contain no
personally identifiable information and are filed and approved
before use. Further, public posting to the website will pose no
privacy risk to insureds or any competitive risk to insurers and
are strictly policy and endorsement documents. Market research
shows consumers often do not read the entire documents, but
instead thumb through the document or read a page or two. The
website access to lengthy documents such as these is not
uncommon, since consumers often receive software licenses or
other agreements on-line when purchasing software or other
items.
3:27:59 PM
MR. JACKSON said some people, including his mother, would not
use website technology. Thus, a paper copy is available to
those who so desire. He pointed out the documents would be
searchable and paper contracts will remain available to
consumers. The U.S. Postal Service has increased postage five
times since 2006 and this bill is designed to help alleviate
some of the postage costs, as well.
3:28:41 PM
REPRESENTATIVE HERRON asked if those opposed to this bill would
likely be the U.S. Post Service and the paper supply companies.
MR. JACKSON responded that no one has contacted the sponsor in
opposition to the bill.
CHAIR OLSON recalled this is an opt-in program.
MR. JACKSON agreed that this bill merely would authorize
companies to post the documents on their website since the
general policies do not contain any personally identifiable
information and thereby anyone who wished to could access the
policy via the website.
3:30:34 PM
REPRESENTATIVE REINBOLD moved to adopt the proposed committee
substitute (CS) for HB 175, labeled 28-LS0327\O, Bailey,
3/22/13, as the working document.
CHAIR OLSON objected for purpose of discussion.
3:31:11 PM
MR. JACKSON, referring to page 1, line 7, pointed out that the
language "provide a policy or endorsement" is inserted to
indicate specifically what will be posted is the policy or
endorsement. The second change on page 1, line 11, would insert
the language "or endorsement," for consistency purposes.
Similar changes are made on page 2, lines 1-2, where the
language "and endorsements," is inserted and on page 2, line 5,
after policy, the language "and endorsements" is inserted.
CHAIR OLSON removed his objection. There being no further
objection, Version O was before the committee.
3:32:44 PM
JOSH ZIELASKIESWISC, Attorney, Progressive Insurance, stated his
primary focus is e-commerce. He explained that his chief
executive officer visited the Progressive Insurance mailing
center and observed numerous boxes of policy contracts awaiting
mailing. He related the Progressive Insurance policy is 35
pages in length, which is on the short side for policies. The
CEO subsequently tasked him to figure out how to limit mailing
out so many policies. The company has conducted product testing
and typically the outcome is that policies are thrown out since
the policyholders are typically interested in their
identification cards and their declarations page since these
items contain the information on deductibles, vehicles, and
drivers covered under the specific policy.
MR. ZIELASKIESWISC outlined the goal of HB 175, which is first,
to dramatically reduce the number of paper property and casualty
insurance contracts and endorsements printed and mailed each
year. Next, the company would like to provide property and
casualty insurance contracts and endorsements on a publicly
available website for existing and potential insureds to review,
save and print whenever they like. Thus, Progressive Insurance
would like to post their policies on a publicly available
website so people can read the policies and perhaps compare them
to other policies. He said one of the added consumer benefits
would be to allow comparison. In fact, consumer groups have
asked for more openness and transparency between carriers.
Additionally, to assist policyholders, each form they purchase
will be itemized on their declarations page or issued along with
it. Finally, the goal of HB 175 would be to provide simple
mechanisms for insureds to access their documents and allow them
to request paper copies free of charge.
MR. ZIELASKIESWISC stated that even when people buy insurance
they typically do not see the printed terms of the contract
until the insurance company mails the polices to the
policyholders. This bill would further benefit consumers since
it allows insurers to fine-tune their efficiencies, which can
lower premium costs. Further, the policies and endorsements
will be available on demand. Typically, people are not too
worried about their policies until they have an accident and
want to check specific coverage and exclusions. Rather than
necessitate calling an insurance company to ask for a policy or
search for it, the policyholders could check on the company's
website.
3:38:12 PM
MR. ZIELASKIESWISC reiterated the benefits. Additionally, there
are green considerations and eliminating these saves natural
resources and printing, as well as postage costs. The
electronic version is searchable in a PDF, consumers can search
and find specific sections within the policy. The policies are
typically printed using a 10 or 12 point font; however, the
online version can be increased in size for readability.
Further, this bill is good for insurance companies, too, for
many of the same reasons that the bill is good for consumers.
3:40:17 PM
MR. ZIELASKIESWISC related that insurance laws typically lag
behind the rest of the financial services. The changes in
HB 175 can help modernize insurance laws to bring them in line
with the rest of the financial services. He predicted laws like
this could also allow more insurance carriers to engage in
commerce. He reported that similar changes have been passed in
Virginia and Michigan. Additionally, other states are
considering similar bills in Arizona, Illinois, Missouri,
Kansas, Texas, Florida, Idaho, Ohio, Oregon, Alabama, Colorado,
Minnesota, Oklahoma, and Pennsylvania.
3:42:38 PM
REPRESENTATIVE JOSEPHSON asked whether the amendment labeled
"O.1" has been discussed.
MR. JACKSON responded it has not yet been offered.
3:42:45 PM
REPRESENTATIVE SADDLER asked whether people could inadvertently
change their policy or if this relates to elections that the
policyholders have previously elected.
MR. ZIELASKIESWISC agreed it only applies to what the
policyholders have elected to purchase. The items they
purchased will be itemized on their declaration page, but
policyholders cannot change their policies inadvertently.
3:44:02 PM
REPRESENTATIVE REINBOLD moved to adopt Amendment 1, labeled 28-
LS0327\O.1, Bailey, 3/27/13, to HB 175, which read:
Page 1, line 2:
Delete "and" in both places
Insert "or" in both places
Page 1, line 9:
Delete "personal"
Page 2, line 1, following "policy":
Delete "and"
Insert "or [AND]"
Page 2, line 3:
Delete "and"
Insert "or [AND]"
Page 2, line 10, following "policy":
Insert "or endorsement"
Page 2, line 12, following "policy":
Insert "or endorsement"
Page 2, line 13, following "policy":
Insert "or endorsement"
Page 2, line 18:
Delete "endorsements"
Insert "endorsement without the insured paying a
fee [ENDORSEMENTS]"
Page 2, line 19:
Delete "endorsements"
Insert "endorsement [ENDORSEMENTS]"
CHAIR OLSON objected for purpose of discussion.
MR. JACKSON explained that Amendment 1 contains a number of
technical changes. He referred to the language "policy and
endorsement" which he said is the preferred language for
consistency. He then referred to one substantive change on page
2, line 18, of Amendment 1, which would add language
"endorsement without the insured paying a fee" to ensure that no
one would be required to pay for a paper copy of his/her policy
or endorsement.
3:46:40 PM
REPRESENTATIVE CHENAULT asked whether page 2, line 18, attaches
a fee if a person requests a copy of his/her policy.
MR. JACKSON answered no, that a person could obtain a copy
without paying an additional fee to ensure policyholders are not
charged a fee for a printed copy of their policy.
CHAIR OLSON [withdrew is objection] and upon determining there
were no further objections, announced that Amendment 1 was
adopted.
3:47:34 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 175.
3:47:54 PM
REPRESENTATIVE CHENAULT asked if anyone has addressed concerns
by the Alaska State Troopers or police associations in terms of
drivers using electronic insurance policies. He understood that
officers do not want the driver to accompany them to their
police cars for safety reasons; however, some concern has also
been expressed that if an officer were to take the phone to the
police vehicle, the driver might suggest calls were made using
the phone during the time it was in the officer's possession.
3:49:09 PM
MR. ZIELASKIESWISC stated that it seemed more like an
identification issue than a policy contract or endorsement issue
since people do not typically bring their policy contracts with
them in their vehicles and instead will have identification
cards in their glove box. The policy cards would be mailed or
e-mailed to them, in whichever manner they have elected to
receive them, he said.
3:50:00 PM
REPRESENTATIVE CHENAULT related a scenario in which advertising
shows a cartoon character handing a phone to an officer in
response to a request for proof of insurance. He surmised the
only reason for an electronic version would be if the person was
in a position in which he/she did not have his/her insurance
card in his vehicle. He also recalled some discussion about
police not wanting to take the phone device.
3:51:04 PM
CHAIR OLSON answered that in Alaska, the vehicle insurance is
required to physically be in the vehicle as a paper document.
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 175.
REPRESENTATIVE REINBOLD moved to report HB 175, labeled 28-
LS0327\O, Bailey, 3/22/13, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, CSHB 175(L&C) was reported from the
House Labor and Commerce Standing Committee.
3:52:05 PM
The committee took an at-ease from 3:52 p.m. to 3:55 p.m.
HB 125-TOPICAL EYE MEDS PRESCRIPTION REFILLS
3:55:16 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 125, "An Act prohibiting a health care insurer
from denying coverage for an additional limited quantity of
prescription topical eye medication under certain
circumstances."
3:55:36 PM
REPRESENTATIVE LINDSEY HOLMES, Alaska State Legislature, as
sponsor, stated that the optometrists and ophthalmologists agree
with the changes in HB 125. She related she is currently
working with the insurance industry on some slight changes to
the bill.
3:56:42 PM
CHRISSY MCNALLY, Staff, Representative Lindsey Holmes, Alaska
State Legislature, on behalf of the sponsor, Representative
Lindsey Holmes, stated HB 125 would allow patients with glaucoma
and other related eye diseases to receive a limited refill of
prescription eye drops if an individual runs out of medication
before the prescribed refill date. Prescription medication is
dispensed in a specific number of dosages and eye drops are no
exception; however, when a medication comes in a pill form it is
still usable if it is dropped, but in contrast, if a patient
blinks away an eye drop, the dose is lost. For patients who
suffer from degenerative eye diseases, such as glaucoma, who
have unsteady hands this may mean running out of medication
prior to the prescribed refill date and these require daily
treatment from prescription eye drops to maintain proper vision,
which can worsen without regular application of drops.
MS. MCNALLY explained that this bill will allow patients to
receive a limited refill of prescription eye drops if an
individual runs out of medication before the prescribed refill
date so long as the doctor agrees. Currently, some insurance
plans restrict patients from refilling medications earlier than
the typical single month or 90-day refill date. A typical
insurance provider will pay for a standardized one month or
three month supply of medication. This is not an uncommon
provision for Medicare; however, a gap exists within private
coverage and simply put, patients who are insured by carriers
within that gap run the risk of running out of their medication
before the refill is allowed. This bill would allow their
doctor to extend the prescription and help keep them healthy.
3:58:31 PM
MICHAEL LEVITT, American Academy of Ophthalmology, stated that
similar legislation has been enacted in a number of states,
including Connecticut, New Mexico, and Maryland. The proposed
changes have been vetted through fiscal committees in those
states with little or no impact to the state. This bill is
focused on a narrow band of patients, not including Medicare
patients since the provision is already covered by a similar
policy. The goal of this bill is to ensure patients continue
their care for chronic diseases that are potentially blinding.
4:00:18 PM
CHAIR OLSON asked for the number of states that currently offer
the proposed provisions for refills.
MR. LEVITT answered four or five states. This effort began in
2009, with some states being more active than others in terms of
proactive legislation; however, the American Academy of
Ophthalmology has had a high success rate when the state's
ophthalmological society decides to focus on this specific
issue.
CHAIR OLSON asked whether any states that have adopted these
changes have withdrawn from the changes.
MR. LEVITT answered none.
4:01:24 PM
REPRESENTATIVE SADDLER asked whether Mr. Levitt anticipated any
increase in the cost for eye medication with passage of this
bill.
MR. LEVITT responded that he has not seen any reports of
increases. He reiterated that this is focused on a very narrow
but serious problem; however, there have not been any reports
from insurance companies of an explosion in costs.
4:02:22 PM
REPRESENTATIVE SADDLER asked whether there is any risk of abuse
of eye medication.
MR. LEVITT explained these are chronic diseases. He surmised
that any abuse should come to the attention of a physician.
Typically, the drugs are used to treat glaucoma, are anti-viral,
or are antibiotics and doctors have not reported this type of
problem to date.
4:03:35 PM
REPRESENTATIVE SADDLER related the bill provides for a limited
refill of topical prescription medicine and he asked whether
this has been quantified to be limited to a number of days or
weeks left in the prescription.
MR. LEVITT answered this is one of the issues that is being
discussed.
REPRESENTATIVE HOLMES answered that she has been working on one
potential change to the bill, which would limit the number of
refills.
4:04:58 PM
SHEELA TALLMAN, Senior Manager, Legislative Policy, Premera Blue
Cross/Blue Shield of Alaska (Premera), stated that Premera
provides coverage to over 100,000 members in Alaska, to
individuals, families, small employers, large employers, as well
as provides service to larger self-funded employer groups in the
state. She advised that Premera has an early refill medication
policy for members. Initially, Premera had concerns about the
early refill of refills of prescription eye medications.
However, she has appreciated the sponsor's willingness to
address Premera's concerns, which she believed would be
addressed in subsequent changes to HB 125 the committee may
choose to adopt.
4:06:39 PM
[HB 125 was held over.]
The committee took an at-ease from 4:07 p.m. to 4:08 p.m.
HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
4:08:44 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 74, "An Act relating to development project
financing by the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska Industrial
and Export Authority; authorizing the Alaska Industrial
Development and Export Authority to provide financing and issue
bonds for a liquefied natural gas production system and natural
gas distribution system; and providing for an effective date."
4:09:01 PM
CHAIR OLSON explained that the committee previously heard this
bill and public testimony has been closed. He explained that
the liquefied natural gas (LNG) and trucking of LNG and propane
was removed from this bill, and therefore what remains in the
proposed committee substitute (CS) for HB 74 is the authority to
allow the Alaska Industrial Development and Export Authority
(AIDEA) the ability to provide direct financing on projects.
4:09:33 PM
REPRESENTATIVE REINBOLD moved to adopt the proposed committee
substitute (CS) for HB 74, labeled 28-GH1738\N, Bailey, 3/20/13,
as the working document.
CHAIR OLSON objected for the purpose of discussion.
4:10:08 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA), Department of Commerce, Community, &
Economic Development (DCCED), introduced himself.
MARK R.DAVIS, Deputy Director, Infrastructure Development,
Alaska Industrial Development and Export Authority (AIDEA),
Department of Commerce, Community & Economic Development
(DCCED), introduced himself.
MR. LEONARD summarized that for the past three years AIDEA has
been working with the legislature to help modernize the tools
AIDEA has to use. He offered his belief that this bill contains
one tool to assist AIDEA in development projects. This vehicle
will assist AIDEA in working with the banking industry in
Alaska, as partners on development projects. For example, he
related that AIDEA's loan participation program has been wildly
successful, with over $468 million of financing for Alaska
businesses. He offered his belief that this tool will assist
AIDEA in moving forward with banks and by helping AIDEA match
financing to specific projects. He explained in some instances
AIDEA should own a portion of a project, such as major
infrastructure industrial road projects in which numerous
entities use the project. However, in some instances, it makes
more sense for AIDEA to promote the project through financing.
Certainly, reasons exist in which AIDEA would not want to own a
portion of the projects, such as for mineral projects. In those
instances, AIDEA might be involved in promoting a mill in an
area to provide major resource development; however, AIDEA may
not want to take on environmental risks. As the financier,
AIDEA's role is as the lender but not in dismantling a project,
reclamation of tailings, or other aspects of a mining project.
He concluded that this direct financing will provide risk
mitigation since AIDEA would not be involved as an owner.
Finally, he offered that this tool will be a very efficient and
effective vehicle to work with Alaska's financial institutions
to promote projects in Alaska.
4:13:24 PM
REPRESENTATIVE JOSEPHSON was unsure of what it meant to finance
a project but not own it. He understood the economic or legal
reasons, but he was unsure of the separation.
MR. DAVIS replied he believes AIDEA's issue is not to avoid risk
but to manage risk. He explained that when investing in a
large-scale project that may be extended, the financing entity
does not have any day-to-day authority over the project, but
could become unintentionally liable for an operator's mistake.
Therefore, traditionally, lenders don't have liability for the
project, but owners do. Further, if AIDEA were to act as an
owner, AIDEA would need to engage in more transaction costs,
which are costs that don't move the project forward, but cost
the state money.
CHAIR OLSON provided an example in which AIDEA owns a rig, but
every time it is used the rig hits gas. He offered his belief
the company is on its fourth well.
MR. LEONARD clarified that AIDEA has collateral on Buccaneer's
rig moving out, but not for the on-land operation.
4:15:58 PM
REPRESENTATIVE JOSEPHSON recalled that AIDEA participates in
loan assistance programs.
MR. LEONARD answered that AIDEA has three main programs,
including the loan participation program, in which AIDEA
partners with banks on loans. He summarized that AIDEA can buy
up to 90 percent of the loan up to $20 million. In essence,
AIDEA partners with banks on these loans to provide long-term
financing. In response to a question, he clarified that is
different than direct financing.
MR. LEONARD explained that the second program is AIDEA's
development financing, in which AIDEA provides financing for
projects, but must have an ownership stake. Thus AIDEA can
either invest in a project via a limited liability corporation
(LLC) or have direct ownership. Over the last couple of years
one of the tools AIDEA has worked with the committee on has been
the ability to own investments through corporations instead of
direct ownership. Third, AIDEA can also issue bonds for
projects using its revenue bond or conduit bond program.
However, this bill would allow AIDEA the ability to provide
financing for projects and instead of having an ownership stake
in a project, AIDEA would provide direct financing for the
project - with no intention of direct ownership - or AIDEA could
provide guarantees on a project. For example, if a bank wanted
to partner with AIDEA, the corporation could layer a guarantee
of the financing for the project.
MR. DAVIS concurred.
4:18:31 PM
REPRESENTATIVE JOSEPHSON asked if this bill is not passed,
whether AIDEA would still consider ownership in projects such as
the Niblack Project in Southeast Alaska or whether the lack of
direct financing would end the possibility of involvement.
MR. LEONARD said it becomes a potential in how to consider the
project, since risk assessment is a portion of the project. It
could change the cost of the financing; however, he suggested
that changing this type of financing tool does not change the
projects or the amount of the investment. Instead, this bill
provides a tool that AIDEA believes is more effective.
Therefore, no; it would not change AIDEA's ability to
participate in the Niblack Project, but it would carry more risk
with the financing of the project.
MR. LEONARD recalled an advantage previously discussed, such
that with direct financing the transactional cost is much less
than for ownership. He explained AIDEA would need to spend more
money to write up, in essence, a partnership, than it would
spend through direct financing, and as Mr. Davis mentioned, all
different scenarios must be considered when AIDEA is a partner
versus being limited as a financier.
4:20:27 PM
REPRESENTATIVE JOSEPHSON asked what other development projects
AIDEA is considering for direct financing. The one that came to
his mind was the rare earth project.
MR. DAVIS answered that AIDEA is considering direct financing
for any industrial plant it may wish to finance due to
operational issues, as well as for financing opportunities. He
stated that AIDEA might not do a project because AIDEA tries to
work with the private sector, and with project financing, AIDEA
can attract commercial bank financing; however, if AIDEA is an
owner, it seeks equity partners such as investment banking.
Thus, AIDEA would be limited in the type of banking it could
approach. Thus, AIDEA would tend to use direct financing when
it would like to work with commercial banks; and use financing
when it would like to invest in a plant or facility with a
limited life. Additionally, as Mr. Leonard said, AIDEA would
invest when it did not see a purpose for state ownership of the
infrastructure, but again, as previously mentioned with a road
with access needed, AIDEA may wish to require ownership interest
in order to require the influence.
4:22:05 PM
MR. LEONARD outlined three projects AIDEA would consider for
direct financing, including Ucore, Prince of Wales; Niblack; or
oil production facilities and industrial facilities, which would
be more effective with direct financing than with ownership.
REPRESENTATIVE JOSEPHSON recalled that AIDEA has done direct
financing with hotels and office buildings.
MR. LEONARD answered yes.
MR. DAVIS clarified the projects in question really weren't
direct financing, but loan participation since those projects
are tied to commercial real estate and cannot be used for other
purposes; however, it is difficult since AIDEA needs secured
interest which is easier to do with real estate since it has an
appraised value than with a chattel. He clarified that AIDEA
has participated in hotels and bed-and-breakfast operations
throughout the state and on investment through loan
participation in a production facility in Sitka. He also
mentioned AIDEA has office building projects in Fairbanks,
Anchorage, and Juneau.
4:23:31 PM
REPRESENTATIVE JOSEPHSON asked whether Mr. Davis has a sense of
the reason the enabling act for AIDEA restricted it to
development projects with an ownership interest.
MR. DAVIS answered that his research indicated that AIDEA's
statutes were based on a West Virginia development authority,
using a model of project ownership. It appears this model was
popular in the 60s and 70s; however, there has been a change in
the U.S. such that New Jersey, Massachusetts, and Indiana have
moved to project financing. That doesn't mean that having
ownership interest isn't a bad tool, so AIDEA is merely asking
to have all the tools.
4:24:30 PM
MR. LEONARD explained that AIDEA can still influence projects
with direct financing if a state interest exists. For example,
one of the reasons to have ownership of the rig mentioned
earlier was to keep it in Alaska waters. He said that could
still be done with direct financing through contracts in the
loans.
MR. DAVIS offered his belief that not moving out of the
jurisdiction would represent a reasonable commercial covenant.
4:25:43 PM
REPRESENTATIVE REINBOLD moved to report the proposed committee
substitute (CS) for HB 74, labeled 28-GH1838\N, Bailey, 3/20/13,
out of committee with individual recommendations and the
accompanying fiscal notes. There being no objection,
CSHB 74(L&C) was reported from the House Labor and Commerce
Standing Committee.
4:26:07 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:26 p.m.