Legislature(2001 - 2002)

01/31/2002 09:45 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                         January 31, 2002                                                                                     
                              9:45 AM                                                                                         
SFC-02 # 3,  Side A                                                                                                             
SFC 02 # 3,  Side B                                                                                                             
SFC 02 # 4,  Side A                                                                                                             
CALL TO ORDER                                                                                                               
Co-Chair Pete  Kelly convened the meeting at approximately  9:45 AM.                                                            
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Jerry Ward, Vice Chair                                                                                                  
Senator Loren Leman                                                                                                             
Senator Lyda Green                                                                                                              
Senator Gary Wilken                                                                                                             
Senator Alan Austerman                                                                                                          
Senator Lyman Hoffman                                                                                                           
Senator Donald Olson                                                                                                            
Senator Dave Donley                                                                                                             
Also Attending:  JOHN BARNETT, Executive Director,  Board of Storage                                                          
Tanks  Assistance;  LARRY DIETRICK,  Director,  Spill  Prevention  &                                                            
Response, Department  of Environmental  Conservation; PAT  DAVIDSON,                                                            
Legislative   Auditor,   Legislative   Budget  &   Audit   Division,                                                            
Legislative  Affairs  Agency;  JOHN  BITNEY,  Legislative   Liaison,                                                            
Alaska  Housing  Finance Corporation,  Department  of  Revenue;  DAN                                                            
FAUSKE, CEO/Executive Director,  Alaska Housing Finance Corporation,                                                            
Department of Revenue; HEATHER BRAKES, staff, Senator Therriault                                                                
SUMMARY INFORMATION                                                                                                         
SB 153-UNDERGROUND STORAGE TANK LOAN FUND                                                                                       
The Committee heard from  the sponsor and a committee substitute was                                                            
adopted as a working draft. The bill was held in Committee.                                                                     
SB 181-SMALL COMMUNITY HOUSING LOANS                                                                                            
The  Committee  heard  from  the  sponsor,  Alaska  Housing  Finance                                                            
Corporation, and Legislative  Audit. The bill was held in Committee.                                                            
SB 115-EXTEND BD. OF STORAGE TANK ASSISTANCE                                                                                    
The  Committee heard  from  the sponsor  and  the bill  was held  in                                                            
     CS FOR SENATE BILL NO. 153(RES)                                                                                            
     "An  Act replacing the  storage tank  assistance fund  with the                                                            
     underground  storage tank revolving  loan fund and relating  to                                                            
     that revolving  loan fund; repealing  the tank cleanup  program                                                            
     and the tank  upgrading and closure program;  and providing for                                                            
     an effective date."                                                                                                        
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Senator Leman  stated this bill proposes to "phase  out" the current                                                            
clean up grant program  by the year 2004 because "the expectation is                                                            
these grants would  be accomplished by that time."  He continued the                                                            
proposed  committee substitute  would  change the  underground  tank                                                            
assistance  fund  into a  "revolving  loan  fund supported  by  loan                                                            
repayments and income earned on the money in the fund."                                                                         
Senator Leman moved for  adoption of CS SB 153, 22-LS0696\L, Cook as                                                            
a working draft.                                                                                                                
There being no objections, the working draft was ADOPTED.                                                                       
Co-Chair  Kelly  commented   that  Senator  Leman  has  supplied  an                                                            
"excellent sectional analysis." [Copy on file]                                                                                  
JOHN   BARNETT,  Executive   Director,   Board   of  Storage   Tanks                                                            
Assistance,  informed  the  Committee  he  supports  this  committee                                                            
substitute and  feels the proposed changes are warranted.  He stated                                                            
the Board of  Storage Tank Assistance  "urges passage" of  this bill                                                            
as it  has language  that  specifies "who  is eligible  for a  loan,                                                            
based on the  federal requirement  of self-insurance." He  stated if                                                            
"someone  is self-insurable,  they are  not eligible  to get  a loan                                                            
from the state."                                                                                                                
Mr. Barnett  stated the self-insurable  language of this  bill would                                                            
disqualify  fourteen of the companies  that have expressed  interest                                                            
in  getting a  loan.  He continued  of  these  fourteen applicants,                                                             
"thirteen  are Chevron corporate  owned facilities."  He voiced  the                                                            
Board  supported  this  bill  because  "it  would  reduce  the  loan                                                            
application  list."  He stated  that the  Board and  the  Department                                                            
concur the grants could be "wrapped up by 2004."                                                                                
Senator Olson asked how  many "applications are being considered" at                                                            
present and how recently they were submitted.                                                                                   
Mr. Barnett stated  currently there are four completed  applications                                                            
for the loan program, and  approximately "fifty-seven have expressed                                                            
interest"  in  applying  for a  loan.  He detailed  the  process  of                                                            
applying for  the loan, and speculated  this would result  in "forty                                                            
to forty-five  applicants  and the loans  could reach  as high  as a                                                            
quarter of a million dollars  depending upon the size of the cleanup                                                            
and the level of contamination at the site."                                                                                    
Senator  Hoffman asked  how  much funding  would  be made  available                                                            
annually under the revolving loan program.                                                                                      
Mr. Barnett responded  that the "amount of funds available  would be                                                            
dictated  by the  number of  applications  and the  amount of  money                                                            
currently  in  the fund."  He  stated "there  are  sufficient  funds                                                            
available in the  storage tank assistance fund that  would roll-over                                                            
into this revolving loan  fund to handle all of our initial expected                                                            
needs" unless  some site "turns out to be very, very  contaminated."                                                            
He noted that  a lump sum is not given out for cleanup  in this loan                                                            
process,  but  would  be  phased over  time,  in  order  to  prevent                                                            
overpayment. He  informed "sometimes the estimates  are pretty high,                                                            
and  the  cleanups  will  come  in a  lot  lower  due  to  basically                                                            
technology improvements and such like that."                                                                                    
Senator Hoffman  commented in a revolving  loan system, a  specified                                                            
amount of money  would be loaned out and the returns  on those loans                                                            
would give back an "estimated  amount of funds to be available to be                                                            
reissued."  He asked, once the revolving  loan fund is established,                                                             
how much money would be available on an annual basis.                                                                           
LARRY DIETRICK,  Director, Division of Spill Prevention  & Response,                                                            
Department  of  Environmental  Conservation,   replied  an  "initial                                                            
capitalization" of $5 million  was passed in SB 128 in FY 00 and the                                                            
Department  is working  off that  balance" currently.  He  informed,                                                            
based the  prospect of  fifty-seven loan  applicants with only  four                                                            
completed  loans in  the door,  the projection  of  the "the  amount                                                            
available for  both the loans and  the grants" is anticipated  to be                                                            
$3.4 million  at  the end of  FY 02.  He continued  if the  clean-up                                                            
grants  are  completed  in  FY 03  as  projected  in  the  committee                                                            
substitute,  and  these  grant  costs are  deducted  from  the  $3.4                                                            
million balance,  approximately $2.1 million would  be available for                                                            
the revolving loan fund at the end of FY 03.                                                                                    
Mr. Dietrick  stated the Department  does not have a rate  of return                                                            
"experience  yet with just  four applications  in the door,"  but is                                                            
working  with the Division  of Insurance  to determine  the rate  of                                                            
return as well  as what the terms and length of the  loans might be.                                                            
He stressed  the Department feels  it is "adequately capitalized  to                                                            
get started" and then "see what that trend will be."                                                                            
Mr. Barnett  stated one problem that  might be experienced  would be                                                            
that some  of the  applications coming  in under  the current  grant                                                            
program may reach their  cap, and if a site "is quite contaminated,"                                                            
the cost  of cleanup might  exceed the grant.  In this scenario,  he                                                            
stated, the applicant  might have to come for a revolving  loan that                                                            
they would  be responsible  for paying back.  As the "sunset  of the                                                            
grant  program" gets  closer," he  stated, the  Department would  be                                                            
able to  see "the level of  interest in the  loan program,  as right                                                            
now it is kind of hard to gauge."                                                                                               
Co-Chair Kelly ordered the bill HELD in Committee.                                                                              
     SENATE BILL NO. 181                                                                                                        
     "An  Act  making  the interest  rate  for  the  Alaska  Housing                                                            
     Finance  Corporation's small  community housing mortgage  loans                                                            
     the  same as  the interest  rate  on mortgage  loans  purchased                                                            
     under the corporation's  special mortgage loan purchase program                                                            
     from  the  proceeds of  the  most recent  applicable  issue  of                                                            
     taxable bonds  before the origination or purchase  of the small                                                            
     community housing mortgage loans."                                                                                         
This  was the third  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Kelly commented  that lively debate  surrounded this  bill                                                            
last year,  and he had held the bill  for more thorough discussion,                                                             
and  to enable  the Alaska  Housing  Finance Corporation  (AHFC)  an                                                            
opportunity  to "fully discuss the  bill in order for the  Committee                                                            
to know the exact impacts as they see it."                                                                                      
Co-Chair  Donley   stated  SB  181   would  eliminate  the   Housing                                                            
Assistance Loan  Fund (HALF) program. He noted the  HALF program was                                                            
designed  approximately  twenty years  ago to  address higher  costs                                                            
that  existed  at   the  time  in  housing  construction   in  small                                                            
communities. He  informed that a Division of Legislative  Budget and                                                            
Audit  report  [copy  on  file],  conducted  in  September  of  2000                                                            
recommended  the  elimination of  this  program. He  referenced  the                                                            
supporting reasons  denoted in the audit, such as:  it was not based                                                            
on need;  a $400,000  loan;  loans not  based on  any assessment  of                                                            
actual costs in those areas;  an arbitrary population methodology as                                                            
to whether a community  is under 6,500 people; loans  not limited to                                                            
residences,  but  including  apartment  complexes;  not  limited  to                                                            
people  who  are  low  income;  and  no  limit  on  house  size.  He                                                            
summarized  HALF is  "highly unfairly  discriminatory"  based  on an                                                            
"arbitrary population  amount that doesn't make any  logical sense."                                                            
Co-Chair Donley continued  that the Alaska Boundary Commission cited                                                            
HALF as "a  disincentive to the formation  of local government."  He                                                            
cited  an Alaska  Boundary  Commission  report [copy  not  provided]                                                            
released in 1998  stated "this program as a major  impediment to the                                                            
formation and consolidation of local government in Alaska."                                                                     
He explained that in some  areas of Alaska, "people on one side of a                                                            
street that  aren't in a  community of 6,500  politically get  a one                                                            
percent  discount on  their building  loan,  and the  people on  the                                                            
other side  of the street  who happen to be  in a community  that is                                                            
over 6,500  don't get it."  He stressed "this  is illogical  and not                                                            
good public policy."                                                                                                            
Co-Chair Donley  stated this population  requirement has  been cited                                                            
as a factor  in communities  "not getting  organized." He  continued                                                            
these reasons  support why this "program  does not fit the  needs of                                                            
Alaska," and  additionally the audit  states there are "alternative                                                             
programs available  in the area for  folks who truly had  needs." He                                                            
explained  some of  those programs  such as:  the Rural Enhancement                                                             
Loan Program; the Interest  Rate Reduction for Low Income Borrowers;                                                            
the Energy Efficiency  Interest Rate; the First Time  Homebuyers Tax                                                            
Exemption;  and the  Veterans discount  program.  He stated some  of                                                            
these programs offer lower  rates than HALF. He reiterated the audit                                                            
recommends  elimination   of the  HALF  program  because   alternate                                                            
programs are available.                                                                                                         
Co-Chair Donley  informed he had worked on the committee  substitute                                                            
over the interim and changed  it to "more of a needs-based program,"                                                            
that would "only  apply to communities that had high  housing costs,                                                            
only  for folks  who were  two times  below the  poverty level,  and                                                            
would only apply to single family homes and duplexes."                                                                          
He stressed this committee  substitute would change the program into                                                            
a "much more public  policy directed loan program  where it actually                                                            
made some  sense going to  people who needed  it rather than  people                                                            
who are building large  apartment complexes" or expensive houses. He                                                            
informed  that this  committee  substitute  would also  "reduce  the                                                            
disincentive  for organization, formation  and unification  of local                                                            
governments" which is a  "very important goal for long range benefit                                                            
of the state."                                                                                                                  
Co-Chair  Donley stressed  this is a  complex issue  and he  did not                                                            
expect the committee substitute  to be adopted today, but rather, he                                                            
hoped  to   refresh  Committee   members'   memories,  hear   public                                                            
commentary,  and  "see  if this  proposed  committee  substitute  is                                                            
possibly the way to go."                                                                                                        
Senator Ward  informed he  is a licensed real  estate agent  and his                                                            
son-in-law  works for AHFC, and noted  this program "affects  all of                                                            
the Kenai Peninsula  which I represent."  He stated he has  received                                                            
significant response from  his district and appreciates the time the                                                            
sponsor has  allowed for  discussion. He  commented "the concept  of                                                            
tightening  the program up is not  out of hand," but stressed  there                                                            
is a  great  deal of  concern in  the real  estate  industry in  his                                                            
district  about  possible  changes  to  HALF.  He  stated  that  not                                                            
everyone  owns a  home, but  "have to  live in  apartments, for  one                                                            
reason or another, and this is a reality in my district."                                                                       
Senator  Hoffman asked  Co-Chair  Donley to  clarify Item  2 in  the                                                            
sponsor  statement  that  states   the elimination   of  HALF  would                                                            
generate "additional earnings at AHFC" each year.                                                                               
Co-Chair  Donley  reported   AHFC  "disputes  that  there  would  be                                                            
savings," and their "position  is that the number of the loans would                                                            
go down" resulting  in AHFC having "reduced revenue  if enough loans                                                            
were not  made." Co-Chair  Donley  noted the audit  cites there  are                                                            
other  loans  available  to fill  the  needs,  and  "it is  hard  to                                                            
believe"  that   AHFC  "can't  be  competitive  on   their  own  for                                                            
reasonable   loans  without   having  the   statutory  one   percent                                                            
Co-Chair Donley,  responding to Senator  Hoffman's question,  stated                                                            
the savings projection  is based on "how much money the state is not                                                            
receiving because  it is charging  a below market interest  rate for                                                            
these loans." He voiced  less revenue was possible "if people do not                                                            
go get these  loans," and "AHFC would  have their own opinion  about                                                            
how much that would be."  He reiterated the number mentioned in Item                                                            
2 was based  on "the amount of the  subsidy that would no  longer be                                                            
there for loan programs."                                                                                                       
Co-Chair Kelly  summarized "the heart  of the argument" is  that Co-                                                            
Chair Donley  thinks this  committee substitute  "would result  in a                                                            
small net  increase  while Alaska  Housing believes  it will  have a                                                            
potential of resulting in a large net decrease."                                                                                
Senator Olson asked Co-Chair  Donley if the private sector has taken                                                            
a stance on this bill: specially, bankers or real estate agents.                                                                
Co-Chair Donley responded  he "would imagine" that someone who lives                                                            
in a small community  and wants to borrow more than  $200,000 "would                                                            
not want  this program to  go away." He detailed  how much  a person                                                            
could save over the life of their HALF loan.                                                                                    
Senator Hoffman  asked whether commercial  businesses would  support                                                            
this bill.                                                                                                                      
Co-Chair Donley responded  this could be answered through the public                                                            
testimony process.                                                                                                              
Senator Ward opined "bankers  tend to adapt to whatever programs are                                                            
Senator Austerman,  referring  to the dispute  of "what is  saved or                                                            
not saved,"  asked if the  legislative audit  states this  committee                                                            
substitute would save dollars.                                                                                                  
Co-Chair  Donley  said  the  audit did  not  address  the  committee                                                            
substitute;  but  did  recommend  elimination  of  the  program.  He                                                            
recapped the reasons  cited in the audit in support  of elimination.                                                            
Senator Austerman,  referring to notes he took during  hearings held                                                            
on this  bill the prior  year, stated that  according to AHFC  there                                                            
would  be  a  $19  million  net  loss  if  the   HALF  program  were                                                            
eliminated.  He commented  it  is his  understanding  that  Co-Chair                                                            
Donley's  report states  there  will be  a net savings,  while  AHFC                                                            
states there will be a net loss.                                                                                                
Co-Chair Donley  reiterated if AHFC charged the full  market rate on                                                            
its current loans, the  result could be "a half a million dollars in                                                            
additional  revenue."   He stated   this  would  help  maintain  the                                                            
dividends that  AHFC pays to the state. He noted AHFC  has indicated                                                            
it would  be paying "$96  of the $103" million  to the "citizens  of                                                            
the state as  a dividend of their  operations," and suggested  a net                                                            
loss was generated due to advertising expenses.                                                                                 
Co-Chair  Donley  stressed keeping  revenues  up would  continue  to                                                            
maintain high  dividend levels to  "help reduce the fiscal  gap." He                                                            
stated AHFC avows if the  one percent discount is disallowed, people                                                            
would not use this loan program, and AHFC would lose revenue.                                                                   
Co-Chair  Donley  stated  the  audit  identifies   that  other  loan                                                            
programs  are  available  if people  do  not  use this  program.  He                                                            
asserted "even AHFC" would  not "suggest there would be a total loss                                                            
of the entire amount of  net revenue from this program" since people                                                            
currently have the option to use other programs.                                                                                
Co-Chair Kelly  clarified the audit states there are  other programs                                                            
currently  available, and  AHFC predicts that  borrowers may  opt to                                                            
choose them  resulting in AHFC losing  money. He stated "we  are not                                                            
talking about AHFC necessarily  competing with private industry, but                                                            
rather is competing with  other quasi-governmental entities in these                                                            
areas."  He stated  "AHFC agrees  with  the auditor  that there  are                                                            
other programs  available, they are just not ours  and that is where                                                            
the net loss comes from."                                                                                                       
Senator  Austerman  asked if  the Division  of  Legislative  Finance                                                            
could prepare  a comparison of the net loss and net  gain "theories"                                                            
for the Committee.                                                                                                              
Co-Chair  Kelly  asked  Division of  Legislative  Finance  staff  to                                                            
compile an analysis for the Committee.                                                                                          
Senator Hoffman  noted many  people have fixed  incomes and  if they                                                            
have  to pay  a higher  interest  rate,  they might  "built  smaller                                                            
homes, borrow  less money, or go to other programs."  He stated this                                                            
would "defeat  the purpose of trying  to get more income  that could                                                            
potentially reduce the  amount of income that AHFC has and therefore                                                            
have an impact on the dividend."                                                                                                
Co-Chair Kelly concurred with Senator Hoffman.                                                                                  
Co-Chair Donley  stated Senator Hoffman's  argument may be  correct,                                                            
but "if  it were correct,  from a public  policy stance, this  would                                                            
argue for no limitation  on the size of the community." He continued                                                            
if the program's  success is based on "how much money  we are making                                                            
off this program,"  it should "not  discriminate and the  population                                                            
cap should  be removed."  He continued if  this were the  situation,                                                            
the program should  be opened up to all Alaskans so  "more money can                                                            
be made." He  continued that currently  the "population cap"  "bears                                                            
no public policy  connection to the "goals that were  enumerated for                                                            
this program" and "doesn't  bear any connection to the argument that                                                            
this is an income producer for the state."                                                                                      
Co-Chair Kelly  stated AHFC is espousing "the public  policy is that                                                            
AHFC would  be able  to make  more money;"  whereas Co-Chair  Donley                                                            
opines AHFC  should be  able to generate  revenue throughout  "their                                                            
portfolio."  He affirmed AHFC  is making  a "business decision  that                                                            
they can make more money  by way by cutting rates across the board."                                                            
He continued  by having lower  rates, AHFC  can compete with  Fannie                                                            
Mae and Freddie Mac in larger communities.                                                                                      
Senator Hoffman  voiced acknowledgement that the cost  of building a                                                            
home is higher  in rural Alaska than it is in Anchorage,  and if the                                                            
goal is to "make the playing  field level" whereby people can afford                                                            
equal homes,  "this  one percent makes  more sense"  because  of the                                                            
higher cost of construction in Rural Alaska.                                                                                    
Co-Chair Kelly  affirmed that "leveling  the playing field"  applies                                                            
not only to square footage,  but also to insulation values and those                                                            
kinds of things.                                                                                                                
Senator Hoffman  stressed Rural Alaska  does not participate  in the                                                            
Tax  Exempt  First   Time  Homebuyers  program  to   the  extent  as                                                            
Anchorage, which had approximately  65 percent or approximately $240                                                            
million of those  loans last year, compared to the  rural areas with                                                            
under  $200,000.  He  informed  certain   loan  "programs  are  more                                                            
adaptable to  rural areas and other  programs are more adaptable  to                                                            
Co-Chair  Kelly   asked  for  clarification  that   the  First  Time                                                            
Homebuyers program is not available to Rural Alaska.                                                                            
Senator Hoffman  replied it is available to all areas  of the state,                                                            
but  "is  more adaptable  or  more  suitable  for  communities  like                                                            
Co-Chair Donley  recognized there  are higher construction  costs in                                                            
some areas of  the state, however, "this statute does  not recognize                                                            
this and makes  an arbitrary cutoff"  regardless of higher  or lower                                                            
construction  costs. He continued  he would "support legislation  or                                                            
public  policy that  was limited  to those  areas  where there  were                                                            
higher construction costs."                                                                                                     
Senator  Ward supported  Co-Chair Donley's  comments that  addressed                                                            
construction costs  as he has personally experienced  this. He noted                                                            
that the house he is building  in Nikiski is going to cost one third                                                            
of what he would pay to  have that same house built in Anchorage. He                                                            
commented that  it does not cost as  much to build in Nikiski  as it                                                            
does in  Anchorage, "mostly  due to the paying  of the improvements                                                             
and the ground itself."                                                                                                         
Senator  Leman stated  construction  costs are higher  in the  rural                                                            
areas  of  the state;  however,  construction  costs  are  only  one                                                            
element of  the cost of the home and  other costs include  property.                                                            
He inquired if an analysis  has been done on the cost of property in                                                            
different  areas of the  state, and  how it would  impact the  total                                                            
cost of a construction project.                                                                                                 
Senator Hoffman explained  that in Bethel the cost of an average lot                                                            
is $30,000; however,  that does not include water,  sewer, a road or                                                            
other  factors.  He detailed  the  costs  incurred to  obtain  these                                                            
necessary  services, and supported  the need  to know what  services                                                            
are available when looking at construction costs.                                                                               
Senator Wilken  asked Co-Chair Donley  if this new bill would  limit                                                            
the size of apartment complexes.                                                                                                
Co-Chair Donley  replied this committee  substitute would  limit the                                                            
size  to  single family  residences  and  duplexes  that  are  owner                                                            
PAT  DAVIDSON,  Legislative  Auditor,  Legislative  Budget  &  Audit                                                            
Division, Legislative  Affairs Agency,  informed the Committee  that                                                            
her Division  reviewed  the "original  purposes of  HALF" and  found                                                            
that over  time, "other than  the higher  cost of construction,  the                                                            
other  barriers to  home ownership  in small  communities have  been                                                            
dealt  with." She  informed that  the Division  reviewed the  actual                                                            
loan portfolio and compiled  the aforementioned report that reflects                                                            
the "distribution  of the loans by geographic locations,"  "overlaid                                                            
with the actual  construction indexed on Anchorage  as 100 percent."                                                            
She stated  the Division  also looked at the  medium income  and the                                                            
average borrowers'  income  in each of the  regions. She  summarized                                                            
the findings  that "the bulk  of program was  not going to  areas of                                                            
high construction,  and  it was going  to borrowers  who had  higher                                                            
than the medium  income for that area."  She stated that  because of                                                            
these findings,  the audit recommended either modifying  the program                                                            
to  "focus  it on  the  remaining  barriers to  home  ownership"  or                                                            
eliminating  the program. She clarified  the audit "did not  look at                                                            
the impact  of the revenue stream  to AHFC comparing mortgages  made                                                            
through  this   program  verses  what   the  next  best   investment                                                            
alternative for those funds were."                                                                                              
Senator  Wilken,  referring  to  page  8 of  the  audit,  asked  Ms.                                                            
Davidson to explain the graph.                                                                                                  
Ms. Davidson explained  the graph reflects the "distribution  of the                                                            
actual loan  portfolio across geographic  regions of the  state" and                                                            
detailed how the  areas score in relationship to construction  costs                                                            
in Anchorage  and the percent of the  total loan portfolio  for that                                                            
AT EASE 10:30 AM / 10:34 AM                                                                                                     
Senator Austerman  inquired about  the source of the information  on                                                            
the costs  of building,  specifically  the reference  stating  it is                                                            
cheaper to build in Juneau than it is to build in Anchorage.                                                                    
Ms. Davidson replied this  information is based on the United States                                                            
Department  of Housing and  Urban Development  Schedule of  Building                                                            
Costs and the AHFC 1999 Construction Costs Survey.                                                                              
Co-Chair  Donley clarified  that  according  to AHFC,  loans in  the                                                            
Housing Assistance  Loan Fund are  not available to large  apartment                                                            
complexes, and are limited to "no larger than a duplex."                                                                        
He continued  that  the current  statute does  not contain  language                                                            
that stipulates a limitation  on the size of an apartment. He voiced                                                            
appreciation to  AHFC for establishing this guideline,  and asserted                                                            
that the  proposed  committee substitute  would  be consistent  with                                                            
current loans and would put the limitation in statute.                                                                          
DAN  FAUSKE,   CEO/Executive   Director,   Alaska  Housing   Finance                                                            
Corporation,  Department of  Revenue reminded  that the Legislature                                                             
had considered  the matter of these  loans several years  prior in a                                                            
similar bill, SB 150.                                                                                                           
SFC 02 # 3, Side B 10:37 AM                                                                                                     
Mr. Fauske continued  that last year, AHFC was directed  by Co-Chair                                                            
Kelly to work  with Co-Chair Donley and Senator Hoffman  to review a                                                            
proposed  committee substitute  by Co-Chair  Donley to address  this                                                            
loan issue in  such a way as not to reduce net income.  He stated an                                                            
analysis  was completed. He  informed, to  address the challenge  of                                                            
not  reducing  net income,  AHFC  took their  current  program  loan                                                            
portfolios  and applied the proposed  formula to it. He said,  based                                                            
on the interpretation of  the proposed formula, the results indicate                                                            
an 83 percent  reduction in the amount  of business AHFC  would have                                                            
had. He stated  "this is where the number comes that  causes us deep                                                            
Mr. Fauske,  in addressing  the issue of  other entities "doing  the                                                            
business,"  expressed that  AHFC is  in a competitive  situation  in                                                            
many parts  of the state.  He informed that  the federal  government                                                            
concentrates  on the  "conventional  market," and  has kept  "Fannie                                                            
Mae"  and  "Freddie  Mac,"  out  of  the  Tax  Exempt,   First  Time                                                            
Homebuyers   market.   He   stated  federal   programs   present   a                                                            
"significant challenge  in some parts of Alaska such as the Railbelt                                                            
down on  the Kenai,"  but are "very  limited"  in the "rural"  rural                                                            
areas of the state.                                                                                                             
He  stressed  in  the  "case  of  losing  business"  to  other  loan                                                            
entities, the  question goes beyond the audit information.  He noted                                                            
the  construction   cost  audit  "excluded  the   cost  of  land  or                                                            
infrastructure." He stated  this explains "why the building costs in                                                            
Southeast are less than  Anchorage," and "when you add back land and                                                            
infrastructure, you will see that the numbers change."                                                                          
He noted "there  have been significant  improvements in the  housing                                                            
industry  across the state."  He informed  that another aspect  that                                                            
affects  AHFC's  competitive  situation  is  that  "Fannie  Mae  and                                                            
Freddie   Mac  and  other   programs  do   not  have  energy   rated                                                            
restrictions."  He continued  "there is a  state law that  prohibits                                                            
AHFC from buying  a loan for a mortgage  where the energy  standards                                                            
don't  meet  state   standards."  He  explained  this   affects  the                                                            
competitive  situation  when  AHFC  competes  with the  $6  trillion                                                            
industry  that  Fannie  Mae,  which   does  not  offer  energy  rate                                                            
subsidies, represents.                                                                                                          
Mr.  Fauske informed  the  Committee he  had  been a  member of  the                                                            
Fannie  Mae advisory  board,  and  had questioned  why  the  federal                                                            
government   did  not   initiate   federal  standards   for   energy                                                            
Mr. Fauske detailed  the fees that AHFC pays to banks.  He explained                                                            
that banks originate  a loan, but then sell them to  a big secondary                                                            
market that  includes Fannie Mae or  Freddie Mac, AHFC, and  Country                                                            
Mr. Fauske compared AHFC  interest rates to other industry secondary                                                            
markets leaders.  He stated  closing costs  and other instate  loan-                                                            
servicing fees AHFC pays are good for the economy of the state.                                                                 
Mr. Fauske  stated another  factor the audit  does not address,  but                                                            
which "discussion  really needs to  hinge on" is the dividends  paid                                                            
to the state by  AHFC. He said this dividend should  be a concern as                                                            
it reflects net income, and "is a business decision."                                                                           
Mr. Fauske  informed he has encountered  very few people  who have a                                                            
problem with  the "fairness  of city verses  borough" issue,  and he                                                            
considers  this  program  well received  and  used  extensively.  He                                                            
stated this  program is the source  of $20 million of net  income to                                                            
the state,  and he  agreed with  Co-Chair Donley  that perhaps  this                                                            
program could be expanded statewide.                                                                                            
Mr.  Fauske   mentioned  that  in   1992,  Alaska  Housing   Finance                                                            
Corporation  paid the  state of  Alaska general  fund approximately                                                             
$190 million  for this loan  portfolio, so  "the state has  not only                                                            
received  the  cash  upfront  for  the  loan  portfolio,"  but  also                                                            
receives "the dividend  that is paid to the state to pay for the net                                                            
income  dividend  calculations  and the  money that  is transferred                                                             
Co-Chair Kelly asked Mr. Fauske for further clarification.                                                                      
Mr. Fauske  informed that  when the Alaska  State Housing  Authority                                                            
(ASHA),  AHFC, and the  Rural Loan  Program were  merged, AHFC  paid                                                            
$190 million to  the state of Alaska for the entire  loan portfolio.                                                            
He continued that  in 1995, AHFC established a transfer  plan, which                                                            
set up a dividend  schedule and payments  to the state of  a portion                                                            
of the  Corporation's  net income. He  noted that  a "good piece  of                                                            
AHFC's  income" is  produced from  the HALF  program. He  summarized                                                            
that "the  state has  received not  only the  cash," but  additional                                                            
benefits from the dividend program as well.                                                                                     
Mr. Fauske noted the section  of the bill refers to transferring any                                                            
monies left  in the fund  to the new program,  and he clarified  the                                                            
projected  balance of $430  million is not  cash but is instead  30-                                                            
year loan assets from which the state would receive payments.                                                                   
Mr. Fauske  stated he would like the  program expanded. He  detailed                                                            
that the "vast  majority" of many "federally mandated  programs" are                                                            
received in the  Anchorage area because of the cost  of housing, the                                                            
income  of people and  other factors,  and that  rural areas  do not                                                            
meet these program guidelines.                                                                                                  
Mr. Fauske  stated he is addressing  these housing guideline  issues                                                            
with the United States  Congress and noted income levels and housing                                                            
acquisition  have been addressed in  the first draft of the  federal                                                            
Millennium Housing  Commission report. He stated that  many Alaskans                                                            
are denied access to these programs because of these guidelines.                                                                
Mr.  Fauske  explained  that  AHFC  created  a  taxable  first  time                                                            
homebuyers  program with no income  restrictions to assist  Alaskans                                                            
because they do not qualify  for federal programs. He stated this is                                                            
the  program  that  competes  directly   with  the  large  secondary                                                            
mortgage  lenders,  and stressed  this  program "represents  a  good                                                            
working aspect of the corporation."                                                                                             
Mr. Fauske  stressed the HALF program  is not unfair, but  rather he                                                            
"views it as an  equable situation to try and eliminate  some of the                                                            
higher  cost areas." He  agreed that  costs have  come down  in some                                                            
areas of  the state but have  gone up in  others, and he feels  this                                                            
program "levels that playing field."                                                                                            
Mr.  Fauske continued  he  would like  to  see this  program  become                                                            
bondable instead of the  current revolving loan program. He informed                                                            
this  would enable  AHFC  "to  re-loan the  money  as  it comes  in"                                                            
thereby  exceeding   the  original  amount  "due  to   the  business                                                            
activity." He detailed  the necessary changes involved in making the                                                            
program bondable  such as changes in state statutes;  down payments;                                                            
and mortgage insurance.                                                                                                         
Mr. Fauske summarized he  would like to see the HALF program remain,                                                            
as "it  works very well."  He detailed the  HALF program's  activity                                                            
this year,  and informed the Committee  that the Board of  Directors                                                            
recommendation for the  dividend transfer plan was based on statute.                                                            
He read  the details  of the dividend  transfer  plan as defined  in                                                            
statute.  He commented  that the transfer  plan was  based on  a net                                                            
income  of $103  million, and  this past  year, the  net income  was                                                            
$96.3 million.                                                                                                                  
Mr.  Fauske  specified  the  audit  conducted  by  the  Division  of                                                            
Legislative Budget  and Audit determined there "needs  to be a great                                                            
deal  of care given  to the  amount  of withdrawals  taken from  the                                                            
corporation" and a concern  as to AHFC's "ability to meet its fiscal                                                            
requirements by FY 05 or  FY 06." He noted this means AHFC "needs to                                                            
carefully monitor  and watch the amount  of money that is  going out                                                            
of the Corporation." He  stressed he knows of no other entity in the                                                            
state "paying  dividends in excess  of what it earned." He  said the                                                            
audit suggests  the need  to carefully monitor  the money  withdrawn                                                            
from the corporation  as to not "exceed  what might be prudent."  He                                                            
informed  this recommendation  "led  to the decision  to reduce  the                                                            
transfer plan  to the amount of net income which is  $96.3 million."                                                            
He reviewed  the history  of AHFC's net income  and summarized  that                                                            
net income has  been on the increase in spite of declining  interest                                                            
rates. He stated in terms  of real net income, "two years ago it was                                                            
$82 million, last  year it was $89 million and this  year it will be                                                            
in the mid  $90's." He clarified,  of this year's $96.3 million,  $7                                                            
million was "windfall  from the Bank of America settlement,"  and if                                                            
"you look at real net income,  we are at $89 million." He stated the                                                            
loan  portfolio has  gone from  26,000 loans  in 1997  to a  current                                                            
30,239 loans, "a significant  jump in business;" and the main factor                                                            
to the  downturn in net  income for the  Corporation is the  Federal                                                            
Reserve lowering interest rates "eleven times this year."                                                                       
He continued  that one  of the  "most significant  line items  other                                                            
than mortgage  income" on the corporation's income  statement is the                                                            
investment  income based  on short-term  securities the Corporation                                                             
owns. He  informed that the  Corporation does  not own equities.  He                                                            
disclosed that  the rate of return has decreased since  the transfer                                                            
fund's inception  in 1995. The Corporation  has gone from  a rate of                                                            
return in 1995, when the  dividend transfer fund was established, of                                                            
"6 percent  to a current  2 percent." He  expressed the Corporation                                                             
has done  a good  job in  "increasing  activities,  keeping its  net                                                            
income on the incline even  though we have had significant downturns                                                            
in interest" rates.  He commented the lower interest  rates are good                                                            
for Alaska  in that  they provide  for low cost  loans that  promote                                                            
Mr. Fauske requested a  "business decision to be made here as to the                                                            
purpose of  this program," and if  the purpose is to make  money, it                                                            
does not  mean "we  have to  give the  farm away."  He stressed  the                                                            
current program  "makes sense, is  not abused, and touches  a lot of                                                            
people  across  the  state  of  Alaska."  He  stated  one  area  the                                                            
Department  could improve upon is  in extreme Rural Alaska  and that                                                            
"is just a difficult nut to crack."                                                                                             
Senator Hoffman  asked if  AHFC had paid fair  market value  for the                                                            
portfolio in 1992. He also  asked how the poverty level specified in                                                            
this committee  substitute, combined with the "125  percent factor,"                                                            
affects the loss of program revenue.                                                                                            
Mr. Fauske  responded the payment  would best be described  as "bulk                                                            
rate"  as it  was not  discounted,  nor was  it the  market rate  an                                                            
investor  might have  paid. In  answer  to the second  question,  he                                                            
explained the  125 percent provision  would result in an  83 percent                                                            
decrease in business.                                                                                                           
JOHN   BITNEY,   Legislative   Liaison,   Alaska   Housing   Finance                                                            
Corporation,  Department of Revenue,  detailed how the calculations                                                             
that projected the 83 percent  reduction in business were conducted.                                                            
He  stated  these  calculations  indicate  that 17  percent  of  the                                                            
applicants  who would have  received loans  would not qualify  under                                                            
the new provisions. He  said this analysis was based on rate scales,                                                            
election  districts,  qualifying  communities  based  on  population                                                            
caps, and other factors.                                                                                                        
Mr. Bitney  stated the Department  has not concluded their  analysis                                                            
on the  impact of the poverty  level provision,  but expressed  this                                                            
provision would limit the applicants even further.                                                                              
Senator Olson asked about the percent of defaulted loans.                                                                       
Mr. Fauske responded the  default rate is approximately 3.2 percent.                                                            
Mr.  Bitney   clarified   that  AHFC   considers   defaults  to   be                                                            
foreclosures  and "that rate is basically  zero." He continued  that                                                            
the delinquency on a statewide  basis is approximately three percent                                                            
on all loans,  both rural and urban.  He continued the rate  is also                                                            
tracked by regions, and  that the rate is increasing to four or five                                                            
percent in  Ketchikan; however, the  area around Dillingham  and the                                                            
Yukon Kuskokwim is lower than three percent.                                                                                    
Senator Olson asked if  AHFC expected any impact on the default rate                                                            
if the bill is passed.                                                                                                          
Mr. Fauske  responded  AHFC does not  know what  impact the  changes                                                            
would have on  the default rate of future business,  but there would                                                            
be fewer loans  and subsequently,  less opportunity for individuals                                                             
in some regions.                                                                                                                
Co-Chair  Kelly stressed the  need to determine  the true impact  of                                                            
this bill, and  questioned the "huge" differences  of fiscal impacts                                                            
presented  by the sponsor  and AHFC.  He voiced  frustration  at not                                                            
being able to reach a conclusion on this issue.                                                                                 
Senator  Wilken asked  where the  information AHFC  provided on  the                                                            
Home Housing Assistance  Program is located in the packet, and asked                                                            
Mr. Fauske  to verify that  AHFC has a $480  million portfolio  with                                                            
$20 million  net income,  which is approximately  four percent,  and                                                            
asked  if the  income figure  is  "net;" factoring  in  the cost  of                                                            
running the program.                                                                                                            
Mr. Fauske responded the figure is net.                                                                                         
Senator Wilken asked if  the cost of administering the program would                                                            
have to be subtracted from that figure.                                                                                         
Mr. Bitney said  that the net income reflects the  service fees paid                                                            
to banks, which is the "most substantial administrative cost."                                                                  
Senator Wilken  verified the net income reflects the  loan servicing                                                            
Senator  Wilken  commented  one  reason  he supports  this  bill  is                                                            
because  for  the  "third  year  in  a  row,"  the   Local  Boundary                                                            
Commission has identified  "this particular program as an impediment                                                            
to  consolidating  governments,"  and in  fact, the  Local  Boundary                                                            
Commission asked  AHFC last year, "to try to do something  with this                                                            
program so it would not  impede the consolidation or organization of                                                            
Senator Wilken  asked what the AHFC  Board of Directors is  doing to                                                            
"remove the incentive to not organize."                                                                                         
Mr. Fauske stated  AHFC is adhering to state law that  specifies the                                                            
community population requirements to qualify for loans.                                                                         
Mr. Bitney  informed that  AHFC did address  consolidation  based on                                                            
regulation,  and is  researching ways  to expand  the program,  with                                                            
statutory changes,  to address the boundary issue  in the event that                                                            
an area is annexed or expanded,  residents are not disqualified from                                                            
the program who would have qualified prior to the annexation.                                                                   
Mr.  Bitney informed  Senator  Wilken  that  the information  he  is                                                            
seeking  is  on page  5,  and is  referred  to  as the  Rural  Owner                                                            
Occupied Program.                                                                                                               
Co-Chair Donley  asked Mr. Fauske if the revenue loss  of 83 percent                                                            
as  projected  by  AHFC  would  be  altered  if  the  poverty  level                                                            
percentage were lowered to 110 from 125.                                                                                        
Mr. Fauske responded it would.                                                                                                  
Co-Chair Donley  inquired about the  process AHFC used to  determine                                                            
how many people  would use other programs, and how  much the numbers                                                            
were discounted  in light  of the fact that  currently people  could                                                            
use other programs.                                                                                                             
Mr. Bitney  explained the First Time  Homebuyers program  limits the                                                            
purchase  price of a home  in Anchorage to  $179,000, and less  than                                                            
that amount  in other regions  of the state.  He stated this  is the                                                            
main limitation  to people obtaining  this loan program as  homes in                                                            
this price range are very limited.                                                                                              
Co-Chair  Donley inquired  about the "ordinary  loan programs"  AHFC                                                            
Mr. Bitney  stated these  programs are in  competition with  federal                                                            
programs such  as Fannie Mae, and because of "the  economy of scale"                                                            
of these larger  loan programs, AHFC cannot offer  as competitive an                                                            
interest rate, and borrowers  "gravitate towards that lower interest                                                            
rate loan."                                                                                                                     
Co-Chair  Donley asked if  any of these "ordinary  loans" are  being                                                            
Mr.  Fauske replied  yes,  and  mentioned  the Taxable,  First  Time                                                            
Homebuyers  loans, offering  variable rates,  saw a "downturn  up to                                                            
and after September 11."   He stated the federal government programs                                                            
"really  stepped it up  a notch  in terms of  an economic  stimulus"                                                            
after the  terrorist attack  on the United  States that occurred  on                                                            
September 11, 2002 and  noted AHFC has also reduced rates, depending                                                            
on  the  variable  rate market.  He  stressed  AHFC  could  be  very                                                            
competitive  with  federal  agencies. He  cited  there  has been  an                                                            
increase in  loans in the last thirty  days as loan rates  have been                                                            
adjusted. He commented  that other programs are more  competitive on                                                            
rates  and  may  be less  restrictive,  and  summarized  this  is  a                                                            
consumers' market and the loan industry is very competitive.                                                                    
Co-Chair  Donley remarked  AHFC does  not know  for certain  whether                                                            
people  "would go to  your ordinary  loan program  or to other  low-                                                            
income loans  verses federal  programs. They  might, but you're  not                                                            
sure." He continued that  the "same process" might be occurring with                                                            
the HALF program.                                                                                                               
Mr. Fauske  responded this could be  happening. He stated  that AHFC                                                            
is a business  and the question is  "do we want to have business  or                                                            
do we want to  give the business to other people."  He stated "he is                                                            
opposed  to that, as  an Alaskan and  as the  CEO." He continued  if                                                            
"AHFC is  not held  to producing  the net income,"  the state  would                                                            
need to "develop policies to promote business," not take it away                                                                
Mr. Fauske  assured the  Committee that under  this bill,  "business                                                            
activity will go down."                                                                                                         
Co-Chair Donley asked if  the Board is "restricted in lowering their                                                            
interest  rate  for  the  regular  mortgage  loans,  such  that  you                                                            
couldn't  just reduce the  other loans by  the one percent  that the                                                            
statutory  HALF   calls  for."  He  stated  this  would   result  in                                                            
significant  new  business and  "make  a lot  more money  just  with                                                            
ordinary loan programs."                                                                                                        
Mr. Fauske  replied the  "problem lies  in that  we are comparing  a                                                            
revolving loan fund to  a bond fund." He detailed the costs involved                                                            
in a bond program,  and that sometimes  the rate to consumers  might                                                            
drop below the  bond cost; whereby the Corporation  would need to be                                                            
subsidized. He  said the state had a previous program  that was used                                                            
to  subsidize  loans.  He  reiterated  the  current  revolving  loan                                                            
programs  states the rate  be set  at one percent  below the  market                                                            
rate, and this  program "is easier to manage as you  do not have any                                                            
bond debt behind the rate."                                                                                                     
Co-Chair Donley  asked, in addition  to being limited by  the amount                                                            
of current  funding and the population  cap, what other limitations                                                             
are there on expanding the HALF program.                                                                                        
Mr.  Fauske  advised that  in  order  to expand,  the  current  HALF                                                            
program would  need to be a bondable  program "consistent  with what                                                            
investors on Wall Street  see when they buy mortgage revenue bonds."                                                            
He stated this  is "do-able," but must be a program  that is "easily                                                            
accessible to Wall Street."                                                                                                     
Co-Chair Donley  asked what limits  there might be if AHFC  expanded                                                            
the program  to give an  interest rate discount  to everyone  in the                                                            
Co-Chair Kelly  commented this might  change the nature of  program.                                                            
Mr. Fauske explained  if this program is expanded  statewide "to get                                                            
away from the  city verses borough  Boundary Commission,  let's just                                                            
take it  statewide and  let's adopt  the definition  of the  federal                                                            
government  for  Alaska,  where  everything  outside  of  Fairbanks,                                                            
Anchorage, and Juneau is rural."                                                                                                
Co-Chair Donley  commented that would make good business  sense, but                                                            
would not be  good public policy,  as it would discriminate  against                                                            
people in  Anchorage, Fairbanks  and Juneau.  He continued  that the                                                            
state  should look  for a  program that  does not  arbitrarily  draw                                                            
"lines on the map" and benefits all Alaskans.                                                                                   
Mr. Fauske  responded  he feels the  current program  works well  in                                                            
addressing  the  issue of  higher  costs  of construction  in  rural                                                            
Co-Chair Donley  stated that the current  loans are not issued  only                                                            
to people who  live in areas of higher  costs, and his concern  with                                                            
the program  is the  question of  whether loans  are truly based  on                                                            
need or just based on arbitrary numbers.                                                                                        
Co-Chair Kelly  stated that the areas  of the state with  the "bulk"                                                            
of loan  activity  are areas  that have  the most  competition  from                                                            
other  loan   entities;  thereby,   making  AHFC  more  competitive                                                             
regardless of the cost of construction and income level.                                                                        
Mr. Fauske affirmed this is correct.                                                                                            
Senator Austerman  asked if the program would have  to become a bond                                                            
program in order to expand the program.                                                                                         
Mr. Fauske  explained it would be  "very difficult" considering  the                                                            
current funds  available in the program  to expand without  changing                                                            
to  a bond  program,  as "funds  would  need  to be  generated  from                                                            
elsewhere." He  stated, however, it could be "done  with a different                                                            
Senator Austerman summarized  this meant the state would need to put                                                            
more money  into the current  revolving loan  program or AHFC  would                                                            
need to change to a bond-based program.                                                                                         
Mr. Fauske concurred.                                                                                                           
SFC 02 # 4, Side A 11:25 AM                                                                                                     
Senator  Hoffman   asked  how  much  additional  revenue   would  be                                                            
generated  for the  state  if the  program were  changed  to a  bond                                                            
Mr. Fauske  stated he did not have  a projection, but would  be able                                                            
to get an answer for the Committee.                                                                                             
Senator Hoffman commented  the higher cost of living in Rural Alaska                                                            
is not addressed in this bill.                                                                                                  
Co-Chair  Donley responded  the  committee substitute  does  address                                                            
this and explained  that if the costs are over a certain  level, the                                                            
interest  rate  percentage  is  adjustable.  He  continued  it  also                                                            
addresses lower  income levels. He explained that  the program could                                                            
be  further "limited  to  those areas  that  have a  higher cost  of                                                            
construction   and  also  for  folks   who  truly  need   the  extra                                                            
Mr. Fauske  noted AHFC watches Anchorage  "very closely"  as it is a                                                            
very vibrant market, and  construction costs appear to be increasing                                                            
there. He stressed  that "down the  road," Anchorage will  be facing                                                            
some "tough  issues" as  land availability  decreases and prices  go                                                            
Co-Chair Donley  voiced appreciation for the time  the Committee has                                                            
spent on  this issue, and  stated he would  continue to work  on the                                                            
committee  substitute and  would explore  expanding  the program  to                                                            
make more money  for the state and  to the benefit of all  Alaskans.                                                            
Ms. Davidson suggested  AHFC investigate splitting  the loan program                                                            
into two  sections: one to  "maintain a loan  fund" to address  high                                                            
cost  areas, and  a new loan  fund with  the mission  of  generating                                                            
Co-Chair  Kelly  noted  that  Mr.  Fauske was  making  note  of  Ms.                                                            
Davidson's suggestions.                                                                                                         
Co-Chair  Donley stated it  might be a wise  "investment policy  for                                                            
some  of our  savings accounts"  to  fund some  sort  of program  of                                                            
"discounted loan mortgages  for homes for Alaskans." He commented it                                                            
might be an  "interesting analysis"  "since the state is  tax exempt                                                            
in its  actions verses pure  investments paid  to the citizens  that                                                            
are subject  to federal  taxes."  He stated  "reduced housing  loans                                                            
might be a better benefit to the state's citizens."                                                                             
Co-Chair  Kelly stated this  bill would be  brought back before  the                                                            
Committee as  a title and a bill number  with the criteria  that the                                                            
committee substitute  must be "income  and inclusive." He  noted the                                                            
Committee  had  "their level  of  education  on the  program  raised                                                            
today."  He  continued  that  any  changes  to  the  bill  would  be                                                            
entertained,  but the  "removal  of the  one percent  program is  no                                                            
longer an option."                                                                                                              
Co-Chair Kelly ordered the bill HELD in Committee.                                                                              
     SENATE BILL NO. 115                                                                                                        
     "An Act extending the termination date of the Board of Storage                                                             
     Tank Assistance."                                                                                                          
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
HEATHER  BRAKES,  staff  to  Senator  Therriault,   highlighted  the                                                            
details of  the bill, which would  extend the Board of Storage  Tank                                                            
Assistance  an additional two years.  She informed that the  current                                                            
"Board  is  in its  wind-down  year  of  2002."  She referred  to  a                                                            
Division  of Legislative  Budget  and Audit  audit  [copy on  file],                                                            
which concludes  the Board should  be re-established as it  plays an                                                            
integral  role in  promoting compliance  throughout  the state  with                                                            
federal  regulations and  the benefits thereof.  She summarized  the                                                            
audit as recommending extension of this "independent board."                                                                    
Co-Chair Donley  voiced concern about taking action  on this bill in                                                            
light of  continuing discussion  about the  Storage Tank  Assistance                                                            
program in SB 153.                                                                                                              
Co-Chair Kelly  said this bill would be readdressed  after action on                                                            
SB 153 was concluded.                                                                                                           
Co-Chair Kelly ordered the bill HELD in Committee.                                                                              
Co-Chair Pete Kelly adjourned the meeting at 11:37 AM                                                                           

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