Legislature(1999 - 2000)
04/30/2000 10:39 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 April 30, 2000 10:39 AM TAPES SFC-00 # 107, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 10:39 AM. PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell, Senator Dave Donley, Senator Pete Kelly, Senator Loren Leman, Senator Randy Phillips, Senator Gary Wilken Also Attending: SENATOR JERRY MACKIE; REPRESENTATIVE ELDON MULDER; ANNE CARPENITTI, Assistant Attorney General, Legal Services Section, Criminal Division, Department of Law; JOHN BITTNEY, Executive Director, Alaska Housing Finance Corporation, Department of Revenue; Attending via Teleconference: From Anchorage: KEN VASSAR, Attorney, Wohlforth, Vassar, Johnson and Brecht; DAN FAUSKE, CEO/Executive Director, Alaska Housing Finance Corporation, Department of Revenue; JOE DUBLER, Senior Finance Officer, Alaska Housing Finance Corporation, Department of Revenue SUMMARY INFORMATION HB 368-CRIM.DEFENDANT:RELEASE/CUSTODIAN'S DUTY: The Committee heard testimony from the Department of Law, and the bill moved from Committee. HB 281-BONDS: PUBLIC SCHOOLS/UNIV/HARBORS HB 287-APPROPRIATIONS: SCHOOLS/UNIV./HARBORS The Committee heard from the Alaska Housing Finance Corporation. A committee substitute to HB 281 was adopted. Both bills were held in Committee. HB 314-PROCUREMENT PREFS: PARTNERSHP/LTD LIAB CO The bill was not in the Committee's possession and therefore not formally heard. Co-Chair Torgerson spoke to a proposed committee substitute that would include many technical corrections. COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 368(JUD) am "An Act relating to release of persons before trial and before sentencing or service of sentence; relating to when service of sentence shall begin; relating to custodians of persons released, to security posted on behalf of persons released, and to the offense of violation of conditions of release; and amending Rule 41(f), Alaska Rules of Criminal Procedure." This was the first hearing for this bill in the Senate Finance Committee. ANNE CARPENITTI, Assistant Attorney General, Legal Services Section, Criminal Division, Department of Law testified that the bill was introduced to give the trial courts in the state more tools to release a person after that person has been charged with a crime, pending sentencing or pending appeal. These tools, she stated, are the ability to enforce whatever conditions of release the court might impose on the defendant. In granting this authority, she explained, the legislation adopts a new crime for violating conditions of release. She said these offences are already crimes in the Municipality of Anchorage and the City and Borough of Juneau and the prosecutors have told her that it is an effective tool for encouraging defendants to abide by the conditions of release. Ms. Carpenitti described the elements of the newly defined crime telling that a person who violates the release conditions imposed could be charged with a Class A misdemeanor if the underlying charge is a felony. She noted that a Class B misdemeanor could be charged if the underlying charge is a misdemeanor offense. Ms. Carpenitti emphasized that this legislation is a way to encourage the people who abide by the conditions of a release. She said this is because current statutes allow that a person re-imprisoned, due to violations of a release, receives credit as time served against the original charge. She said there are currently no additional consequences for violating the conditions of release. Ms. Carpenitti continued that the bill allows a court to impose a performance bond on a person who is released. She defined a performance bond as the defendant's money that must be posted and would be lost to that person if a violation of release is committed. She shared that some judges are reluctant to release a defendant on a $5000 appearance bond, but would be more willing to release a person on a $250 performance bond. This, she said is because bail bondsmen will not write performance bonds and therefore, the financial incentive is placed on the defendant. Ms. Carpenitti shared that a decision issued in January 2000 by the Court of Appeals determined that trial courts do not have sufficient authority to issue performance bonds. This bill provides that statutory authority, she attested. Ms. Carpenitti pointed out this bill clarifies that a third party custodian for a person released is subject to prosecution for contempt of court if the custodian fails to report violations. She stressed that the court is responsible for informing the custodian both verbally and in writing, the consequences for not reporting violations immediately. Ms. Carpenitti concluded that the bill also gives statutory authority for judges to impose delayed sentences. She explained that under current law, judges often sentence a defendant to a term in prison but delay the starting date of that term due to employment obligations or prison overcrowding. Senator Leman asked what types of felony crimes the conditional release would apply to and if it would include violent crimes against others. Ms. Carpenitti replied that the US Constitution gives people the right to be released before trial because they have not been found guilty. Therefore, she said there are many felony offenses that a defendant could be charged with and yet still be released. She noted that performance bonds usually are imposed for less serious offenses. She said this method is often used in smaller communities but that the bonds could be required as part of a release package for people charged with committing violent crimes. Senator Phillips asked if any opposition has been voiced on the bill. Ms. Carpenitti answered that testimony given in prior committees by the defense bar in Anchorage relayed concerns. Co-Chair Parnell wanted to know what were the concerns. Ms. Carpenitti replied that the Senate Judiciary Committee removed a provision requiring mandatory forfeiture of a performance bond if the defendant contacted the victim in violation of an order of release. She said the concerns were with the forfeiture proceedings related to this provision. She added that there was some opposition to the performance bonds generally. Senator Donley spoke to the Senate Judiciary Committee hearings on the bill and how some of the public defender's concerns were addressed. He stated that the committee amended the bill to require that the performance bonds be part of the appearance bonds, which took care of the conflict. Co-Chair Torgerson stated that he had attended the same committee meeting and had come to the same conclusion that most concerns were addressed although not all parties were completely satisfied. Co-Chair Parnell offered a motion to report from Committee CS HB 368 (JUD) am, 1-GH2027\I. There being no objection, the bill MOVED from Committee. COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 281(FIN) am "An Act relating to the financing of construction of public school facilities, facilities for the University of Alaska, and facilities for ports and harbors; authorizing the commissioner of revenue to sell the right to receive a portion of the anticipated revenue from a certain tobacco litigation settlement to the Alaska Housing Finance Corporation; relating to the deposit of certain anticipated revenue from a certain tobacco litigation settlement; authorizing the issuance of bonds by the Alaska Housing Finance Corporation with proceeds to finance public school construction, facilities for the University of Alaska, and facilities for ports and harbors; providing for the creation of subsidiary corporations of the Alaska Housing Finance Corporation for the purpose of financing or facilitating the financing of public school construction, facilities for the University of Alaska, and facilities for ports and harbors; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. Co-Chair Torgerson described the bonding packages included on a pie chart, Bond Package HB 281. [Copy on file.] He explained how the bonds would be financed using a combination of municipal school bonds, a newly created Municipal Harbor Program, the Alaska Housing Finance Corporation (AHFC) bonding capacity within the current financing structure, plus anticipated tobacco settlement funds. Co-Chair Torgerson detailed the distribution of funds, including $20 million for the Anchorage library, deferred maintenance on the University of Alaska Fairbanks, $3.1 million deferred maintenance in Anchorage, $1.7 deferred maintenance in Juneau, $700,000 for deferred maintenance in Mat-Su, $6 million matching funds for Corps. of Engineering projects, $4.2 million for the Alaska Vocational Technical Institute, and $5 million for deferred maintenance on AHFC facilities. Co-Chair Torgerson directed attention to the attached pages that show a breakdown of the specific projects by geographical area and by funding source. Co-Chair Torgerson noted that some of the projects are located in Rural Education Attendance Areas (REAA) that do not have bonding authority and therefore need to be changed. Co-Chair Parnell moved to adopt CS HB 281 1-LS1201\B as a workdraft. Senator Adams objected, saying that to have a fair bond package, the University of Alaska-Southeast classroom project must be included. He said this was necessary to ensure that all areas of the state benefit. Co-Chair Torgerson explained that this package does not require a vote to be implemented because the bonds are not general obligation but rather revenue bonds, municipal debt, AHFC bonds and the harbor reimbursement program. Senator Donley expressed he would vote against the committee substitute as well but his reason was because this plan does not include a vote of the people. He recognized that there is no constitutional requirement for a vote but asserted it would be better to have a vote from a public policy point of view. A roll call was taken on the motion. IN FAVOR: Senator P. Kelly, Senator Leman, Senator Wilken, Co-Chair Parnell and Co-Chair Torgerson OPPOSED: Senator Phillips, Senator Donley, Senator Adams, ABSENT: Senator Green The motion PASSED (5-3-1) The committee substitute was ADOPTED as a workdraft. Co-Chair Torgerson detailed the committee substitute. Page 7, lines 19 and 20 - allows reimbursement for school indebtedness authorized by the municipality prior to the June 30, 1998 deadline, also extends the deadline that debt must be incurred to July 1, 2004 to qualify for reimbursement. Page 8, line 14 - changes funding of $2,237,000 for projects located in an REAA that does not have bonding capacity from municipal bonds to tobacco securitization. This was the second hearing for this bill in the Senate Finance Committee. Senator Adams asked if this change addresses the projects in Wrangell, Petersburg and Delta Junction. Co-Chair Torgerson answered that the specified funds are to pay for the Kake school construction. Page 8, line 29 to page 9 - section rewritten to stipulate that 40 percent, or approximately $93 million, of the tobacco settlement receipts would be pledged for 15 years for the debt of this program. Page 9, line 29 - stipulates that no more than the authorized amount of tobacco settlement funds could be used for securitization of the bonds. Page 10, lines 21 and 22 - moves the Amber and Kiana school projects into the school reimbursement program from the tobacco settlement securitization. Co-Chair Torgerson stated that this change is made to offset moving the Kake school project from the school reimbursement program to the tobacco settlement-backed program. He noted that the funding impact is negligible. Page 11, line 29, through page 12, line 3 - this language is deleted from the amended House Finance Committee version. Co-Chair Torgerson explained that the language applied to the harbor transfer program, but that the project was part of the Corps of Engineers program and thus was unnecessary. He further detailed that the harbor transfer program requires an agreement to transfer the facility to the local municipality before the state could reimburse the money, and that the corps program has no such requirement. Co-Chair Torgerson continued that the committee substitute also contains several conforming amendments to the above mentioned changes. Co-Chair Torgerson announced that a new Senate bill would be introduced later in the day that encompasses harbor projects. He said this was to avoid an otherwise necessary title change to this bill. Senator Leman suggested changing the last three digits of each dollar amount listed in the committee substitute to "000", thus rounding the figures downward. Co-Chair Torgerson stated he made a note to make that change in the next drafted committee substitute. Senator Donley asked if the total cost over the lifetime of the bonds had been calculated. Co-Chair Torgerson responded that the AHFC had prepared figures for the bonds, which that organization is part of. He noted that he would request the Office of Management and Budget to provide a complete analysis. He advised that the committee substitute has only just been presented and therefore, there had not been time to prepare the corresponding information. He assured the bill would not move from Committee at this meeting to allow for information to be gathered and considered. Senator Phillips also wanted to see a complete amortization. Co-Chair Torgerson stated that his intent was that HB 312, currently in the House Finance Committee, establishes a sub account of the Constitutional Budget Reserve (CBR) fund and would provide the potential funding source for any debt reimbursement. He expressed that future legislatures would have the opportunity to consider the sub account as a funding source but not to dedicate it as the funding source. Senator Donley clarified that HB 312 would put the statutory mechanism for funding bond indebtedness but not to stipulate the sub account as a dedicated funding source. He asked if this bond package includes a deposit of the amount required to satisfy the debt into the sub account. Co-Chair Torgerson affirmed and explained that the sub account could not be included in HB 281 before the Committee without a title change. Senator Donley asserted he was therefore not convinced this package is the best solution. However, if he could be assured the sub account would be used to fund the bond repayment, he would support the bills. Co-Chair Torgerson informed Senator Donley that he knew of no way to dedicate the funds in the sub account. He qualified that finding a way to do just that is worth considering. JOHN BITTNEY, Executive Director, Alaska Housing Finance Corporation, Department of Revenue, testified that the co- chair's request was to provide information on necessary changes to securitize the tobacco settlement funds to repay the $93 million bond package. He shared that other officers of AHFC were online listening to the meeting. Mr. Bittney first addressed Section 1 subsection (b) that speaks to intent to back out $1.4 million of the total tobacco revenue that would have been spent on smoking education and cessation programs. He stated that because the legislation only uses a portion of the tobacco settlement proceeds, there is still a great deal of revenue available to the state for the tobacco-related programs. Mr. Bittney said AHFC recommends depositing the tobacco funds into the general fund and transferring $1.4 million to AHFC rather than the current language, which stipulates the funds would be "sold" to AHFC. He assured that whatever method of distributing the funds is still legislative intent. Mr. Bittney recommended changes to the committee substitute as they apply to AHFC. Page 9, line 2 - Delete "all but $1.4 million" and insert "40 percent". Amended language reads, " Page 9, line x - Delete "up - through the end of line 6 Mr. Bittney pointed out that this language speaks to investment grades, keeping in mind that the $269 million was the proceeds that were anticipated from selling the balance of the MSA after reduction of $1.4 million and ensuring that AHFC was selling investment grade bonds. He said that this language is not longer necessary. Page 9, line 7 - Following "proceeds" insert "to the state of the sale the right to receive revenue", delete "sold" and "$269,000,000" and insert "at least $93 million. The amendment language reads, " Page 9, line 29 - Change language to read, "bonds issued under (b) of this section" Mr. Bittney explained that the existing language relates to tobacco bonds and the accounts pledged for those bonds. He said AHFC wants the credits to be pledged only for the AHFC general obligation bonds. He said that the intent is that the tobacco securitization bonds have no pledge and the risk is purchased by the investors. Page 10, line 11 - Include authorization for AHFC deferred maintenance projects KEN VASSAR, Attorney, Wohlforth, Vassar, Johnson and Brecht, testified via teleconference from Anchorage to make it clear that the language on page 9 relating to the capital reserve fund is described in AS 18.56.125 as a "moral obligation reserve fund". He explained that the suggested change ensures that the tobacco bonds, the state's moral obligation, is in no way connected with those bonds. He stressed that the intent is that the tobacco bonds are to be strictly revenue bonds supported only by the revenues of the tobacco settlement. Co-Chair Torgerson noted that recommendation would be offered in a subsequent committee substitute. Senator P. Kelly asked if AHFC has an estimate on the size of reserve account at the end of the term. Mr. Bittney referred to spreadsheets provided, Tobacco Settlement Payment Analysis, draft of April 30, 2000 and Bond Debt Service Report, Tobacco Revenue Bonds, 2000 Series AA, that illustrate the costs and payments for this level on bond issuance. [Copy on file.] Senator P. Kelly then asked for clarification of the amount requested for AHFC deferred maintenance projects and asked if inclusion of those projects requires a title change. Co-Chair Torgerson answered that the AHFC projects total $5 million and explained that authorization must be given in this bill, but the actual appropriation could not be done without a title change. That is the reason, he said HB 312 would be used to carry the appropriation for the AHFC deferred maintenance. DAN FAUSKE, CEO/Executive Director, Alaska Housing Finance Corporation, Department of Revenue introduced AHFC staff present to address the Committee. JOE DUBLER, Senior Finance Officer, Alaska Housing Finance Corporation, Department of Revenue, testified via teleconference from Anchorage starting with the Bond Debt Service Report. He stated that this report is a debt service schedule of the proposed tobacco revenue bonds. He detailed the columns in the spreadsheet. He pointed out that the redeemed principle comes from surplus revenues that is a result of the over-collateralization required of the MSA. He said the redeemed principle is calculated on the assumption that the payments are made on schedule, and if payments were not made on schedule, the principle amount would be higher and the time taken to pay off the debt would be extended. He continued that the redeemed principle allows the debt to be satisfied in December 2015 rather than the scheduled maturity of December 2039. He summarized that the total bond payment matches approximately with the 40 percent expected of the MSA. Co-Chair Torgerson clarified that AHFC would issue $93 million of debt for revenue bond and the total bond payment is estimated at $188,850,000. He stated that the difference between this bond package and previously considered packages is that the current version increases the percentage to 40 percent in order to retire the debt five or six years earlier. He continued that the projected MSA totals approximately $562 million and the total debt payment through December 2015 totals approximately $188 million, leaving a $571 million tobacco settlement fund balance. Senator Adams asked if the total interest paid is $60.6 million. Mr. Dubler affirmed and added that one portion of the bonds is called a capital appreciation bond (CAB) and no interest paid is shown. He defined CAB as "a zero coupon bond that doesn't pay current interest" and once the bond is redeemed, the payment is considered a redemption not an interest payment. Senator Adams asked the witness' financial opinion on whether the proposed bond package is more beneficial than using the CBR to pay for the projects directly. He noted that projected revenues for the state continue to decline due to oil production rates. Mr. Fauske responded that the rates of return on the CBR would first need to be examined. He estimated that the rates of return would exceed six-percent if the CBR were managed in a similar fashion as the permanent fund. He therefore surmised that the cost of issuing debt would be less than the cost of spending cash because earnings on investments should earn more than the debt incurred. Senator Adams then wanted to know whether Mr. Fauske believed that the proposed bond package funding mechanism violates the dedication of funds requirements. Mr. Fauske expressed that AHFC does not believe this plan is a violation of the dedicated funds issue. He said that Mr. Bassor concurred. Co-Chair Torgerson noted several legal opinions that agreed the proposed bond package is not in violation. Senator Adams asserted that the opinions depend on how the requests to the bond council are worded. Co-Chair Torgerson countered that this is the reason he requested additional opinions from those who would not benefit from the proposal. Senator Adams wanted to know if passage of HB 281 would have any effect on the $103 million annual dividend the state receives from AHFC. Mr. Fauske confirmed and detailed the dividend amounts and the capital budget requests. He pointed out that this bill utilizes the remainder of the current dividend after AHFC capital projects are funded. Tape: SFC - 00 #107, Side B 11:26 AM Mr. Fauske continued detailing the amounts of money withdrawn from the dividend to pay for existing bond indebtedness. Senator P. Kelly asked for clarification that after AHFC capital projects are funded, the remaining $50 million of the AHFC dividend would be used to fund this bond package. Mr. Fauske stated that this was correct. Senator P. Kelly commented that this proposal is similar to the co-chair's earlier plan to create a sub account in the earnings reserve using CBR funds. He asserted that the similarity strengthens the argument to pass this legislation. He expressed this plan as "good money management." Senator Donley wanted further explanation of how this bond proposal package would relate to education projects in the Anchorage area. He referred to previous project lists and noted the structure of the current list provides that those projects already authorized would receive 70 percent reimbursement. He wanted to know if the remaining 30 percent would be available for new projects. Co-Chair Torgerson corrected that the 70 percent reimbursement refers to payment of the state's share of municipal revenue bonds. He explained that the Municipality of Anchorage received voter approval to pay 100 percent of the cost, in the event the state did not contribute to the project. Therefore, he stated, the municipality is still responsible for the remaining 30 percent cost of the project. He added that the same provision applies to Mat-Su projects. Senator Donley noted that traditionally the projects, which receive the highest voter approval for bond issuance have been transportation projects. However, he pointed out that this bond package contains no road projects and that concerned him. Co-Chair Torgerson noted the "billion-dollar capital budget" that addresses many of the transportation needs. Co-Chair Torgerson ordered the bills HELD in Committee. ADJOURNED Senator Torgerson recessed the meeting to the call of the Chair at 11:31 AM and adjourned the meeting at 3:45 PM. SFC-00 (13) 04/30/00
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