Legislature(1995 - 1996)
04/10/1996 09:20 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
10 April 1996
9:20 A.M.
TAPES
SFC-96, # 72, Sides 1 & 2
SFC-96, # 73, Side 1
CALL TO ORDER
Senator Rick Halford, Co-chairman, convened the meeting at
approximately 9:20 A.M.
PRESENT
In addition to co-chairman Halford, co-chairman Frank,
Senators Phillips, Sharp, Rieger and Zharoff were present
when the meeting was convened. Senator Donley arrived later
and attended for a short time only.
Also Attending: Keith Kelton, Director, Division of Facility
Construction & Operation, Department of Environmental
Conservation; Mike Burns, Section Chief Municipal Grants,
Division of Facility Construction & Operation, Department of
Environmental Conservation; Marie Sansone, Assistant
Attorney General, Natural Resources Section, Civil Division,
Department of Law; Richard Levitt, President Gustavus
Electrical Co.; Kellus Sewell, Government Affairs; Nico Bus,
Acting Director, Division of Support Services, Department of
Natural Resources; Dwight Perkins, Special Assistant, Office
of the Commissioner, Department of Labor; Arbe Williams,
Director, Division of Administrative Services, Department of
Labor; and aides to committee members.
Via Teleconference: Mrs. Berda Willson, Nome Joint Utility;
Dick Mylius, Resource Assessment & Development, Division of
Land, Department of Natural Resources; and John Baker,
Assistant Attorney General, Natural Resources Section, Civil
Division, Department of Law.
SUMMARY INFORMATION
CS FOR SENATE BILL NO. 207(CRA)
"An Act authorizing the issuance and sale of revenue bonds
to fund public wastewater systems, nonpoint source water
pollution control projects, including solid waste management
systems, and estuary conservation and management projects;
authorizing the use of the Alaska clean water fund to pay
and secure the bonds and to pay costs related to issuance
and administration of the bonds; authorizing certain
measures to secure payment of the bonds; and amending Rule
3, Alaska Rules of Civil Procedure."
CS FOR SENATE BILL NO. 207(JUD)
"An Act authorizing the issuance and sale of revenue bonds
to fund public wastewater systems, nonpoint source water
pollution control projects, including solid waste management
systems, and estuary conservation and management projects;
authorizing the use of the Alaska clean water fund to pay
and secure the bonds and to pay costs related to issuance
and administration of the bonds; authorizing certain
measures to secure payment of the bonds; and amending Rule
3, Alaska Rules of Civil Procedure."
Mr. Keith Kelton and Mr. Mike Burns, Department of
Environmental Conservation testified on behalf of this bill.
Marie Sansone, Department of Law answered legal questions of
the committee. Mrs. Berda Willson, Nome Joint Utilities and
Diana Bennett, Anchorage Waters Utility testified in favour
of the bill via teleconference. Co-chairman Halford advised
he and Senator Rieger will work on problematic areas of the
bill. Bill was HELD in committee.
SENATE BILL NO. 307
"An Act authorizing the Department of Natural Resources to
exchange with the federal government state land within, and
adjoining, Dude Creek Critical Habitat Area for federal land
adjacent to Fall Creek; and providing for an effective
date."
Senator Frank explained that this related to a hydroelectric
project for Gustavus. Senator Zharoff said that this was a
worthwhile consideration. Mr. Richard Levitt, General
Manager, City of Gustavus Electric testified on behalf of
the bill stating there was no opposition in Gustavus to this
project. Mr. Nico Bus explained the fiscal note and said he
would enter a new fiscal note reflecting monied changes as
requested by the committee. Dick Mylius, Department of
Natural Resources and John Baker, Assistant Attorney General
testified via teleconference. Co-chairman Frank moved
amendment #1 and without objection it was adopted. He
further moved conceptual amendment on page 2, line 9 of SB
307, Section 3, deleting "another" and inserting "any
other" and without objection it was adopted. Co-chairman
Frank MOVED CSSB 307(FIN) and WITHOUT OBJECTION it was
REPORTED OUT with individual recommendations and adjusted
fiscal note to be submitted by Department of Natural
Resources.
CS FOR SENATE BILL NO. 207(CRA)
"An Act authorizing the issuance and sale of revenue
bonds to fund public wastewater systems, nonpoint source
water pollution control projects, including solid waste
management systems, and estuary conservation and
management projects; authorizing the use of the Alaska
clean water fund to pay and secure the bonds and to pay
costs related to issuance and administration of the
bonds; authorizing certain measures to secure payment of
the bonds; and amending Rule 3, Alaska Rules of Civil
Procedure."
Mr. Keith Kelton, Department of Environmental Conservation
was invited to join the committee. He gave a brief
background of the bill and its' companion HB401. In 1987
Congress re-authorized the clean water act to replace an
existing grants program with a loan program. Prior to this
there were grants available to municipal governments for up
to 75% of the construction of waste water facilities. The
state and community put in matching shares. After the re-
authorization of the act they converted it into a low-
interest loan program which was then capitalized by matching
grants from State contribution. The monies from these loans
initially exceeded demand. The last several years the loan
interest has increased and at the rate of current obligation
the account will soon be overdrawn and not be available for
community infrastructure for management and development.
The sale of revenue bonds has been proposed that would allow
extension and leverage of the existing remaining balance of
the loan fund. This pattern is the same as had been done in
20 other states. In the development of this bill DEC has
worked closely with Departments of Labor and Revenue along
with their bond counsel, financial advisors and the
Department of Law to develope this proposal. Basically it
is trying to be insured there is an adequate supply of loan
funds for communities with waste water facilities. (Mr.
Kelton referred to a chart for the committee.) The draft
legislation proposed creating a bond redemption fund that
the costs of issuing bonds would go through the state bond
committee. They would then find the investors, sell the
bonds and the proceeds would come back to expand the
capability of issuing new bonds. He said the original bill
had been modified by Senate CRA committee to put a cap on
the amount of revenue bonds that could be sold at $15
million/year with a ten year maximum. He referred to a
numbers chart and said these could vary depending on actual
circumstances that will happen in the next ten years. The
existing state match and the federal grant are unknown at
this time. There is an appropriation even without
authorization presently for federal money to be coming in as
currently allocated. There would be interest earned on the
corpus of the account and other unallocated portions of the
loan account of $3 million/year. He referred to out-going
debts.
Co-chairman Halford asked if there was any state match in
the Governor's budget Mr. Kelton said there was a $1.5
million match in the front end of the operating budget.
With reference to this program being used in 20 other states
he said there had been no defaults of the loan payments. He
said this was a program that would benefit the larger
communities and was a win/win situation for the State.
Senator Rieger said the numbers outlined should more than
cover the $15.8/year that is needed. Mr. Kelton said that
was correct and advised that they did not have sell the
bonds if they were not needed but it was just nice to have
them in place if they were needed. There is no assurance
for the additional federal funds.
After further discussion between Senator Rieger and Mr.
Kelton, co-chairman Halford said he felt the program was
working very well. However, he was worried that it all
sounded too good to be true and things that sound too good
to be true are usually eating out of their value and end up
worthless ten years away and one doesn't know where it went.
He asked if the value of the entire portfolio ten years from
now was going to be more than it was today and all the loans
were going to be made? Mr. Kelton concurred. Senator
Rieger said he wondered about the alternative of continuing
it without the loan program would do to the value of the
portfolio. In ten years, compounding at 4%, which is a 50%
increase in the value of the corpus, it will grow, but not
as much? Mr. Kelton said he thought it would decline if the
revenue bonds are not available because the demand is going
to take the corpus down to the point there will be no
interest coming back from any invested money in the corpus.
All that will be available for re-loan will be the principle
and interest that is coming back. That is projected without
additional modifications of the program to stabilize at $6.5
million out of the revolving account absent any new money
coming into it from the Federal and State match. In
response to Senator Rieger's question, the department
determines the funding of projects. It is based on
environmental and health concerns as well as other project
related competitions. No project up to this time has been
turned away. The department has noticed an increased
interest the last two years and so it is anticipated that
this will now change.
Co-chairman Halford asked how much of the evaluation in
terms of who gets the money is based on the projected
ability to repay the amount. Mr. Kelton said it is 100%
unless there is a dedicated revenue stream. Typically there
has to be a provision in place from revenues collected from
utility payments which would offset an meet the repayment
request. Co-chairman Halford said he was concerned the fund
could lose its' value if it is making loans that cannot be
repaid because of the choices made in the selection of
loans. As soon as the fund loses its' economical value and
because a social purpose it will be gone. Mr. Kelton
concurs. He explained the difference between the JUD CS
and the CRA CS and said they were basically housekeeping
amendments that were proposed by the Department of Law.
There was nothing significant in the revision.
Marie Sansone, Assistant Attorney General, Department of Law
was invited to join the committee. She explained Rule 3 of
the Civil Rules and said it was a rule change for venue.
That change would prevent hometowning as stated in the
original proposal. She referred them to page 6, lines 9 -
10.
Senator Rieger asked the last sentence on page 4, line 29 -
31 to be explained. Ms. Sansone said the decisions of the
bond committee as expressed in the bond resolution would be
considered the final decision. The intent of that was the
bond committee, which is composed of the commissioners of
Administration, Revenue and Commerce & Economic Development.
They will also be working closely with the Department of
Environmental Conservation in crafting the bond program,
selecting projects and making decisions. She further said
the sentence was to address any conflicts or questions about
interpretation, since this is a bond resolution it would be
the decision of the state bond committee that would be the
final decision. That would eliminate any questions about who
would have the authority to make decisions and who has a say
over what the terms mean. Senator Rieger asked who would
conclusively make the decisions and she said one would have
to read the previous sentence also. DEC would have to
consider the needs of the communities and balance other
factors. Making the decisions about the terms of the bonds
will need alot of give and take and balancing. These
sentences would require the committee to consider the public
health and environmental purposes of the projects and then
balance against the best financial terms. Senator Rieger
referred to AS 37.15.580, pledge of the state, in terms of
contracts made by the committee with the holders and asked
how broad this was. Ms. Sansone said the bond committee
does have quite a bit of power, in terms of fashioning the
bond resolutions. The pledge of the state then, is that the
state and its agencies will not interfere with the state's
abilities to meet that contract. In drafting the bill,
enough checks and balances were included and the due
processes itself offers enough input that the bond committee
would be acting in the State's interest and would have
enough input and review from other agencies and entities.
Senator Rieger asked if this was some circular way of
deeming that the regulations are proper regardless of what
they say or how they are arrived at? She said that the
regulations would be treated the same as any other state
regulations and follow the same review and public process.
They would be reviewed to make sure they were consistent
with all state laws and requirements. They would have the
same review and checks on them that any other agency's
regulations would have. The regulations contemplated in
this bill may not be necessary but it was trying to be
anticipated a situation where the bond committee would need
to interpret language or need to see out requirements they
expected the municipalities to meet or procedures that
needed to be articulated in a regulation form. This was a
device included in the bill to enable them to do their job.
Senator Rieger asked if the committee drafts a bond
resolution what good is all the review if it is deemed
conclusive that it comply. Ms. Sansone responded the
committee is required to follow the statute and if they have
adopted regulations that have taken effect they are legally
required to follow those regulations. The bond committee
decisions would be final and conclusive between the
agencies. Senator Rieger specifically wanted to know who
was bound by the requirement to consider if the bond
committee has conclusively complied. Ms. Sansone referred
to the provision on page six stating the bond owners are
able to enforce the covenants, terms and conditions of the
bonds and they have the ability to challenge whether the
bond committee had complied. She said they would work on
some further language to clarify the matter. She further
referred to the language regarding the pledge of the state
and said this was a standard provision appearing in all
state bond programs. It is not pledging the moral
obligation of the state but rather it is pledging that the
state will not interfere with a contractual relationship
with the bond owners.
Mr. Kelton, in response to question by Senator Rieger said
that the language on page 11, lines 29 - 30 was put in at
the request of the Senate CRA committee to allow the
opportunity for municipalities to work in concert with
organizations outside their corporate boundaries such as
service districts or housing authorities or any other group
that wanted to pledge revenues outside the municipal
boundary. However, the municipality ultimately must sign on
the dotted line and they are responsible regardless of where
the service is extended to. Senator Sharp asked why
mention regional housing authorities if the municipality is
the ultimate signature, just because it is outside the
boundary or beyond their powers? A majority of regional
housing authority monies come through grants. Mr. Kelton
concurs and said the language was probably not needed but it
was added at the request of Senate CRA committee.
Mrs. Berda Willson, Nome Joint Utilities and Diana Bennett,
Anchorage Water Utility testified via teleconference. Both
testified previously in favour of the bill and continued to
urge its' passage. Ms. Willson said many homes in Nome were
still on water tank truck water and used honey buckets. She
said the city and taken advantage of loans for new sewage
treatment plants. Ms. Bennett said Anchorage was a major
recipient of the loan which has provided much needed water
quality improvements for the city. Senator Rieger asked
about the capital construction plan in Anchorage in the
amount of $4 - $6 million/year and wanted to know if that
would be a growing amount or a constant amount. Ms. Bennett
said this was an average and referred to the city's six-year
plan to draw on the clean water fund.
Co-chairman Halford asked Senator Rieger to help work on
problematic areas of the bill. He said it was necessary to
protect something that is working well.
Mike Burns, Department of Environmental Conservation was
invited to join the committee. He said bonds were being
sold at the market rate and the corpus could be invested at
any rate. This would offset any differential and would
allow for a slow growth of the program over the years.
Senator Halford asked where the money was that was being
invested at the higher rate to cover the loans at the lower
rate. There must be a package of dollars invested at
taxable higher interest rates versus tax-exempt lower
interest rates to somehow create the arbitrage that will
cover the difference. Mr. Burns advised that they do not
know about the possibility of future money but they would
have the opportunity for $80 million to lend out. He said
they did not have to put out all the bonds as loan money.
$30 million is committed under a federal program. Mr.
Kelton said he would provide spread sheet information
regarding this matter for the committee. Co-chairman
Halford held the bill in committee for further work.
SENATE BILL NO. 307
"An Act authorizing the Department of Natural Resources
to exchange with the federal government state land within,
and adjoining, Dude Creek Critical Habitat Area for federal
land adjacent to Fall Creek; and providing for an
effective date."
Senator Frank explained that this bill related to a
hydroelectric project for Gustavus and the bill would
authorize the necessary land exchange with the federal
government. Senator Zharoff said the project was being done
at local initiation and this was a worthwhile consideration.
There was no opposition from the City of Gustavus to this
project.
Mr. Nico Bus was invited to join the committee. He
explained the fiscal note and said he would enter a new
fiscal note reflecting the monied changes as requested by
the committee.
Dick Mylius, DNR and John Baker, Assistant Attorney General
testified via teleconference from Anchorage. Mr. Mylius
addressed provisions that apply and those that did not. Mr.
Baker referred to the land exchange statute to protect
public access and mineral rights.
Senator Frank moved amendment #1 and without objection it
was adopted for inclusion into a new CS. He further moved a
conceptual amendment on page 2, line 9, deleting "another"
and inserting "any other" and without objection it was
adopted. Senator Frank moved CSSB 307(FIN) and without
objection it was reported out with individual
recommendations and adjusted fiscal note to be submitted by
the Department of Natural Resources.
ADJOURNMENT
Co-chairman Halford adjourned the meeting at 11:00 A.M.
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