Legislature(2009 - 2010)SENATE FINANCE 532

04/01/2009 09:00 AM Senate FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 57(FIN) Out of Committee
Heard & Held
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  SENATE FINANCE COMMITTEE                                                                                      
                       April 1, 2009                                                                                            
                         9:04 a.m.                                                                                              
9:04:50 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stedman called the Senate  Finance Committee meeting                                                                   
to order at 9:04 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Charlie Huggins, Vice-Chair                                                                                             
Senator Johnny Ellis                                                                                                            
Senator Donny Olson                                                                                                             
Senator Joe Thomas                                                                                                              
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Jody  Simpson, Staff,  Senator Charlie  Huggins; Eddy  Jeans,                                                                   
Director,  School  Finance  and   Facilities,  Department  of                                                                   
Education  and Early Development;  Brenda Taylor,  President,                                                                   
Academic Policy  Committee, Juneau Community  Charter School;                                                                   
Katie  Koester,  Staff,  Representative  Paul  Seaton;  Diane                                                                   
Barrans,   Executive    Director,   Alaska    Commission   on                                                                   
Postsecondary  Education, Department  of Education  and Early                                                                   
Development  and  Executive  Officer,   Alaska  Student  Loan                                                                   
Corporation;  Charlene  Morrison,  Chief  Financial  Officer,                                                                   
Alaska Commission  on Postsecondary Education,  Department of                                                                   
Education and Early Development.                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
Kiki  Abrahamson,   Teacher,  Fireweed  Academy   and  Alaska                                                                   
Charter  School  Association,  Homer;  Lee  Donner,  Managing                                                                   
Director, First Southwest Company.                                                                                              
SB 57     "An Act relating to charter school funding."                                                                          
          CS SB 57(FIN) was REPORTED  out of Committee with a                                                                   
          "do pass"  recommendation and with  attached fiscal                                                                   
          note  by  the  Department of  Education  and  Early                                                                   
HB 109    "An Act relating to eligibility for the Alaska                                                                        
          supplemental  education  loan  program and  to  the                                                                   
          interest  rate for  a  loan made  under the  Alaska                                                                   
          family  education loan  program; and providing  for                                                                   
          an effective date."                                                                                                   
          HB 109 was HEARD and HELD in Committee for further                                                                    
CS HB 172(FIN)                                                                                                                  
          "An Act relating to  an investment in the education                                                                   
          loan   fund;   relating   to  authority   for   the                                                                   
          commissioner  of  revenue  to  enter  into  a  bond                                                                   
          purchase  agreement and letter  of credit  with the                                                                   
          Alaska Student Loan  Corporation; and providing for                                                                   
          an effective date."                                                                                                   
          CS HB 172(FIN) was SCHEDULED and not HEARD.                                                                           
SENATE BILL NO. 57                                                                                                            
     "An Act relating to charter school funding."                                                                               
9:05:36 AM                                                                                                                    
Senator Joe  Thomas, Sponsor, explained that  the legislation                                                                   
corrects  a flaw  in  school funding  law  as  it applies  to                                                                   
charter  schools  with  fewer  than 150  students,  which  he                                                                   
called the  "charter school  penalty." He  read parts  of the                                                                   
Sponsor Statement (Copy on File):                                                                                               
     Current law  results in these charter  schools receiving                                                                   
     30 to  45 percent less  state funding than  neighborhood                                                                   
     schools of  their same size.  SB 57 funds  these charter                                                                   
     schools at  a per-child rate closer to  that of average,                                                                   
     urban elementary schools.                                                                                                  
     Charter   schools  are  public   schools  that   provide                                                                   
     valuable  education  options  to Alaska  families.  They                                                                   
     increase  learning  opportunities and  encourage  parent                                                                   
     and  community  involvement   in  our  schools.  Charter                                                                   
     schools  are  designed  and  managed  by  parent-elected                                                                   
     boards,  under contracts  with  local school  districts.                                                                   
     They  create  school  choice within  the  public  school                                                                   
     system.  The process  of  choosing  engages parents  and                                                                   
     gives  them a  feeling  of ownership,  which  encourages                                                                   
     student achievement.                                                                                                       
     In  1995,   the  legislature  passed   Alaska's  initial                                                                   
     charter school law. SB 57  solves the funding problem in                                                                   
     an  equitable,  fiscally  responsible  manner.  It  will                                                                   
     support our schools and districts  as they carry out the                                                                   
     legislature's  intent  in  creating the  charter  school                                                                   
     The  root  of the  problem  is  the way  the  foundation                                                                   
     formula  calculates  the  "adjusted student  count"  for                                                                   
     charter schools versus neighborhood schools.                                                                               
     Charter  schools with  an  enrollment of  less than  150                                                                   
     students  are not  treated as separate  schools  for the                                                                   
     purpose of the adjusted student  count calculations. The                                                                   
     impact  of this system  on charter  schools is  shown in                                                                   
     the attached  graph. The  consequences are that  the law                                                                   
     provides  an  inadequate  amount of  money  for  charter                                                                   
     schools  with fewer  than 150 students  to survive,  and                                                                   
     there  is dramatic  decrease in  funding when a  charter                                                                   
     school's  enrollment  drops from  150  to 149  students.                                                                   
     School districts  can be  penalized for allowing  school                                                                   
     SB 57  states that charter  schools with fewer  than 150                                                                   
     students will  have their student count  adjusted by the                                                                   
     same per-student  rate as neighborhood schools  with 400                                                                   
     students.  It also  contains  a one-year,  hold-harmless                                                                   
     provision for  charter schools that are  either in their                                                                   
     first  year  of  operation  or who  had  more  than  150                                                                   
     students the  previous year. These schools  will receive                                                                   
     95  percent  of  the per-student  rate  of  neighborhood                                                                   
     schools with 150 students.                                                                                                 
9:09:04 AM                                                                                                                    
Senator Huggins MOVED to ADOPT Amendment 1, 26-LS0238\E.2,                                                                      
Mischel, 4/1/09:                                                                                                                
     Page 1, line 1, following "charter":                                                                                     
          Insert "and alternative"                                                                                            
     Page 2, following line 6:                                                                                                  
          Insert a new subsection to read:                                                                                      
          "(e) If an alternative school has a student count                                                                     
     of more than 120 but less  than 175 for the current year                                                                   
     and is in the first year  of operation, or had a student                                                                   
     count of 175 or more in the  previous year of operation,                                                                   
     the  adjusted  student count  for  the school  shall  be                                                                   
     calculated  by  multiplying  the  student  count  by  95                                                                   
     percent  of the  student rate  for a school  that  has a                                                                   
     student count of 175."                                                                                                     
     Reletter the following subsection accordingly.                                                                             
     Page 2, line 7:                                                                                                            
          Delete "(c) and (d)"                                                                                                  
          Insert "(c) - (e)"                                                                                                    
     Page 2, line 10:                                                                                                           
          Delete "AS 14.17.905(b)"                                                                                              
          Insert "AS 14.17.905"                                                                                                 
     Page 2, following line 10:                                                                                                 
     Insert new material to read:                                                                                               
          "Sec. 14.17.905. Facilities constituting a school.                                                                  
     (a) For purposes of this chapter, the determination of                                                                     
     the number of schools in a district is subject to the                                                                      
               (1)  a community with an ADM of at least 10,                                                                     
     but not more than 100, shall be counted as one school;                                                                     
               (2)  a community with an ADM of at least 101,                                                                    
     but not more than 425, shall be counted as                                                                                 
                    (A)  one elementary school, which                                                                           
          includes those students in grades kindergarten                                                                        
          through six; and                                                                                                      
                    (B)  one secondary school, which                                                                            
          includes students in grades seven through 12;                                                                         
          (3)  in a community with an ADM of greater than                                                                       
     425, each  facility that  is administered as  a separate                                                                   
     school shall be counted as  one school, except that each                                                                   
     alternative  school with an ADM  of less than  175 [200]                                                               
     shall  be  counted  as  a  part of  the  school  in  the                                                                   
     district with the highest ADM."                                                                                            
Co-Chair Stedman OBJECTED for discussion.                                                                                       
Senator  Huggins  described  past   experience  with  charter                                                                   
schools  in   the  Matanuska-Susitna   (Mat-Su)  Valley.   He                                                                   
commented  that the original  charter school  law was  put in                                                                   
place  in  a  different  era and  the  provisions  can  cause                                                                   
schools  to lose  significant funding  when the  loss of  one                                                                   
student  changes the  count  from  150 to  149.  He has  been                                                                   
supportive  in  the  past  of  financial  correction  to  the                                                                   
situation and he wanted the change to be put into statute.                                                                      
Senator  Huggins  described similar  issues  for  alternative                                                                   
schools  and  noted  a resolution  from  the  Mat-Su  Borough                                                                   
School District  ("Resolution No. 09-002," Copy  on File). In                                                                   
the  same way  charter schools  must  have a  minimum of  150                                                                   
students,  alternative schools  must have  a minimum  of 200.                                                                   
Alternative schools suffer from  the same funding problems if                                                                   
they lose a  single student below the minimum.  The amendment                                                                   
would address the issue for alternative schools.                                                                                
9:11:24 AM                                                                                                                    
JODY  SIMPSON,  STAFF,  SENATOR   CHARLIE  HUGGINS,  SPONSOR,                                                                   
addressed the  mechanics of Amendment  1. She  explained that                                                                   
the threshold  for alternative schools would  be lowered from                                                                   
200 to  175 students.  Alternative schools that  consistently                                                                   
have fewer  than 175 students  will continue to be  funded as                                                                   
if their students  attended the largest in the  district, and                                                                   
will  not get  the  1.18 rate  that SB  57  gives to  charter                                                                   
schools. The amendment also puts  in place the one-year hold-                                                                   
harmless  provision for  alternative schools  with more  than                                                                   
175 students the  previous year or schools in  the first year                                                                   
of operation. Alternative schools  will receive 95 percent of                                                                   
the per-student  rate for the 175 count.  Alternative schools                                                                   
will have  to submit  a plan for  the hold-harmless  year and                                                                   
work with their school board to  determine a course of action                                                                   
if  enrollment projections  are  not met  and  the school  no                                                                   
longer  qualifies   for  the  hold-harmless   provision.  She                                                                   
stressed that the  measure is a legislative  priority for the                                                                   
Mat-Su School Board.                                                                                                            
EDDY  JEANS,   DIRECTOR,  SCHOOL   FINANCE  AND   FACILITIES,                                                                   
DEPARTMENT  OF  EDUCATION AND  EARLY  DEVELOPMENT,  expressed                                                                   
support for the amendment. He  pointed out that the amendment                                                                   
addresses the problem that occurs  when an alternative school                                                                   
falls below the 200 student mark.                                                                                               
9:14:16 AM                                                                                                                    
Co-Chair Hoffman  asked how many schools would  be covered by                                                                   
the  bill  before the  amendment  and  how many  schools  had                                                                   
between 175  and 200  students. Mr.  Jeans answered  that the                                                                   
original  bill addressed  four charter  schools with  student                                                                   
counts   below  150.   The   amendment   would  address   one                                                                   
alternative  school.  A  total   of  five  schools  would  be                                                                   
Senator  Olson   requested  the  Sponsor's  opinion   of  the                                                                   
amendment. Senator  Thomas replied that he was  supportive of                                                                   
the amendment.                                                                                                                  
Co-Chair  Stedman  WITHDREW  his OBJECTION  to  Amendment  1.                                                                   
There being NO further OBJECTION, Amendment 1 was adopted.                                                                      
9:15:43 AM                                                                                                                    
Mr. Jeans  referred to  the fiscal  note and emphasized  that                                                                   
page 2 lists the four charter  schools that would qualify for                                                                   
the additional  funding for small  schools. The  schools with                                                                   
enrollment under 150  would be funded at the  1.18 rate. Page                                                                   
3 of the note  shows the fiscal impact of the  amendment. One                                                                   
school  would  generate  an additional  $600,000.  The  total                                                                   
fiscal note is $1,314,300.                                                                                                      
Co-Chair Stedman  asked if the fiscal note  would change from                                                                   
the draft version. Mr. Jeans did not expect a change.                                                                           
Co-Chair Stedman opened public testimony.                                                                                       
KIKI  ABRAHAMSON,   TEACHER,  FIREWEED  ACADEMY   and  ALASKA                                                                   
CHARTER    SCHOOL   ASSOCIATION,    HOMER   (testified    via                                                                   
teleconference),  testified in  support  of the  legislation.                                                                   
She emphasized the importance  of providing equitable funding                                                                   
for educational alternatives.                                                                                                   
9:18:22 AM                                                                                                                    
Senator Ellis  thought the  legislation addressed  unfinished                                                                   
business  and  stated support  for  the improvements  to  the                                                                   
Senator  Huggins informed  the  committee that  his wife  was                                                                   
employed by the Mat-Su school district.                                                                                         
Senator  Olson spoke  for constituents  in  his district  who                                                                   
support the bill, particularly the Nome Charter School.                                                                         
Senator  Ellis noted the  presence of  Juneau charter  school                                                                   
students in the audience.                                                                                                       
9:19:52 AM          AT EASE                                                                                                   
9:20:31 AM          RECONVENED                                                                                                
BRENDA TAYLOR,  PRESIDENT, ACADEMIC POLICY  COMMITTEE, JUNEAU                                                                   
COMMUNITY CHARTER  SCHOOL, introduced four students  who were                                                                   
present in the room. The group supported the legislation.                                                                       
Co-Chair Stedman  commended the  students for taking  part in                                                                   
the legislative  process. Ms. Taylor told the  committee that                                                                   
the students were  representing other students  who wanted to                                                                   
be there but were unable to attend.                                                                                             
Co-Chair Stedman closed public testimony.                                                                                       
Senator Thomas  MOVED to report  SB 57 out of  Committee with                                                                   
individual recommendations and  the accompanying fiscal note.                                                                   
There being NO OBJECTION, it was so ordered.                                                                                    
CS SB 57(FIN) was REPORTED out  of Committee with a "do pass"                                                                   
recommendation   and  with  attached   fiscal  note   by  the                                                                   
Department of Education and Early Development.                                                                                  
HOUSE BILL NO. 109                                                                                                            
     "An  Act   relating  to   eligibility  for   the  Alaska                                                                   
     supplemental education loan  program and to the interest                                                                   
     rate for a  loan made under the Alaska  family education                                                                   
    loan program; and providing for an effective date."                                                                         
9:22:36 AM                                                                                                                    
KATIE KOESTER,  STAFF, REPRESENTATIVE  PAUL SEATON,  SPONSOR,                                                                   
explained  that  the  legislation   would  allow  the  Alaska                                                                   
Commission on  Postsecondary Education  (ACPE) to  sell bonds                                                                   
to generate  money for  student loans  in the current  fiscal                                                                   
climate. House Bill 109 was brought  to Representative Seaton                                                                   
and  the House  Education  Committee  by Diane  Barrans,  the                                                                   
director  of ACPE.  The legislation  requires  a borrower  to                                                                   
have either  good credit or a  co-signer with good  credit in                                                                   
order to get a student loan from the state of Alaska.                                                                           
Ms. Koester noted that the requirement  only applies to state                                                                   
loans called  alternative education  loans. The  restrictions                                                                   
would  not  apply  to  federally  guaranteed  loans  such  as                                                                   
Stafford  loans.  Currently, a  borrower  can  get an  Alaska                                                                   
student loan  as long as they  do not have bad  credit, which                                                                   
means they  can get  a loan  with no  credit. In the  current                                                                   
fiscal climate, investors are  not willing to back the loans.                                                                   
The commission  cannot use loans as currently  structured for                                                                   
collateral. Without  the change,  ACPE will either  be forced                                                                   
to stop  lending to Alaska borrowers  or the state  will have                                                                   
to  directly fund  the program  with  $40 to  $50 million  in                                                                   
general funds.                                                                                                                  
Ms. Koester  added that HB 109  makes a change to  the Family                                                                   
Education  Loan  (FEL).  Through  the FEL  program  a  family                                                                   
member can  borrow on  behalf of  other members. The  current                                                                   
interest rate  for the loan is  set in statute at  5 percent;                                                                   
HB 109  would allow the student  loan corporation to  set the                                                                   
rate to not  exceed 8.25 percent. She explained  that the FEL                                                                   
rate would  be set in the  same manner as the  Alaska student                                                                   
loan is currently set.                                                                                                          
Senator  Ellis  queried  the  feedback  the  legislation  was                                                                   
receiving  from  students and  student  organizations  across                                                                   
Alaska. Ms. Koester reported that  there have been some phone                                                                   
calls from the  student community. She explained  that in the                                                                   
current fiscal  climate, the loans  are viewed  as sub-prime.                                                                   
The  state will  have to  address the  issue if  it wants  to                                                                   
continue borrowing.                                                                                                             
Senator  Ellis asked  if the  legislation would  self-correct                                                                   
when the economy  got better. Ms. Koester replied  the change                                                                   
would be permanent until the legislature  addressed the issue                                                                   
9:27:24 AM                                                                                                                    
Senator Olson  asked how many  students would not be  able to                                                                   
go to  college if the  bill did not  go through.  Ms. Koester                                                                   
replied  that  there has  never  been  an assessment  of  the                                                                   
credit   standard   of   loan    applicants.   She   believed                                                                   
hypothetical scenarios had been run.                                                                                            
Senator Olson  asked when  the funds  would be available  for                                                                   
eligible  students  if  the legislation  were  to  pass.  Ms.                                                                   
Koester  replied that  it would  take a fiscal  year for  the                                                                   
changes to take  effect. She referred to HB  172, which would                                                                   
provide  for a  bridge  loan from  the  state  to the  Alaska                                                                   
Student Loan Corporation  and enable the commission  to offer                                                                   
loans during the upcoming academic year.                                                                                        
Co-Chair  Stedman  asked  if  young  citizens  from  families                                                                   
without good credit  would be excluded from  the program. Ms.                                                                   
Koester  acknowledged the  possibility of  exclusion of  some                                                                   
people. She stated that statistical analysis of the 2008-                                                                       
2009  academic  year reveals  that  the  only 24  percent  of                                                                   
Alaska student  loan applicants  are under  21 years  of age.                                                                   
Older applicants  usually  have had other  ways to  establish                                                                   
credit. An applicant would be  limited if they were too young                                                                   
to establish credit, did not have  a family with good credit,                                                                   
and were  unable to find someone  else to sign.  However, the                                                                   
federal loan  would still be  available to those  individuals                                                                   
and had been increased.                                                                                                         
9:30:59 AM                                                                                                                    
Senator  Ellis  commented  that  students he  had  spoken  to                                                                   
thought the loan  would make life more  difficult, especially                                                                   
for  students with  low-income  families. He  asked that  the                                                                   
sponsor  be  informed  of  the   Alaska  Achievers  Incentive                                                                   
Program [SB  33], legislation  designed to make  college more                                                                   
affordable for  Alaskan students. He acknowledged  that loans                                                                   
outlined by  HB 109 may be  necessary, but noted  that Alaska                                                                   
ranks  poorly  regarding  college  affordability.  Graduation                                                                   
rates are not great and the state  lacks a strong needs-based                                                                   
financial  aid system.  Ms. Koester  replied  that she  would                                                                   
give the  information to the  sponsor and added  that Senator                                                                   
Seaton was looking at legislation to help students.                                                                             
Senator  Thomas  stated  concerns   about  credit  for  older                                                                   
students, since people  tended to go back to  school when the                                                                   
economy is struggling.                                                                                                          
9:33:38 AM                                                                                                                    
DIANE  BARRANS,  EXECUTIVE  DIRECTOR,  ALASKA  COMMISSION  ON                                                                   
POSTSECONDARY EDUCATION  COMMISSION, DEPARTMENT  OF EDUCATION                                                                   
AND EARLY DEVELOPMENT, and EXECUTIVE  OFFICER, ALASKA STUDENT                                                                   
LOAN CORPORATION, echoed the urgency of the situation.                                                                          
Co-Chair Stedman queried other  possible solutions that would                                                                   
not  exclude low-income  families. Ms.  Barrans replied  that                                                                   
the federal guaranteed  education loan is available  for low-                                                                   
income families without credit.  Parents can borrow on behalf                                                                   
of  students  through  the Stafford  and  Federal  PLUS  loan                                                                   
programs,  which have  a very modest  adverse credit  review.                                                                   
Federally  guaranteed  loan limits  have  been increased.  An                                                                   
independent  student  can  borrow $9,500  in  their  freshman                                                                   
year. The  amount increases up  to graduate level,  when over                                                                   
$20,000 per year can be borrowed.                                                                                               
Ms.  Barrans  added  that another  way  to  serve  low-income                                                                   
families would  be for  Alaska to  create a state  guaranteed                                                                   
loan  program.  Following  the federal  model,  Alaska  would                                                                   
guarantee repayment  of any loan the borrower  did not repay.                                                                   
She stated  a proposal  could be made  to the legislature  if                                                                   
there was interest.                                                                                                             
9:36:38 AM                                                                                                                    
Senator Ellis  asked how interest  rates were  determined. He                                                                   
reported that  students he had  spoken to had  many questions                                                                   
about interest rates compared  to other financing mechanisms.                                                                   
He  also  wondered  if  there  should  be  a  self-correcting                                                                   
mechanism imbedded in the [FEL] program.                                                                                        
Ms. Barrans explained  that historically the rate  was set by                                                                   
statute at 5 percent.  The current rate is tied  to the state                                                                   
alternative loan  rate, which is capped at  8.25 percent. The                                                                   
rate  is  set by  factoring  in  the  cost  of funds  and  of                                                                   
administering the program. The  base rate is the federal rate                                                                   
plus 50 basis  points or 0.5 percent. Currently  the interest                                                                   
rate is  7.3 percent, the lowest  rate in the country  for an                                                                   
alternative  loan.  The only  loan  rate  lower would  be  an                                                                   
equity loan.                                                                                                                    
Senator Ellis  asked if the  Alaska Student Loan  Corporation                                                                   
could be available  on various campuses to  discuss financial                                                                   
issues  affecting  students.  Ms. Barrans  replied  that  the                                                                   
commission had  met with students regarding  the legislation.                                                                   
She  agreed that  a  forum would  be helpful.  She  expressed                                                                   
dissatisfaction with the change that was needed.                                                                                
9:40:26 AM                                                                                                                    
Co-Chair  Stedman   asked  what  other  states   were  facing                                                                   
regarding student  loans and how other states  had responsed.                                                                   
Ms.  Barrans   replied  that   every  state  is   facing  the                                                                   
situation.  In  some  states the  non-profit  entity  stopped                                                                   
making  education  loans.  In  other states,  the  state  has                                                                   
stepped in  and purchased the bonds  sold by the issuer  at a                                                                   
negotiated  rate  that was  beneficial  to the  issuer.  Some                                                                   
states,  such as  New York,  are creating  a new  alternative                                                                   
loan program,  a pre-funded guaranteed  loan. She  added that                                                                   
in each case,  good credit criteria are in  place. States are                                                                   
intervening to assist with the  current lack of liquidity and                                                                   
with the ability to finance things  in the market, not to put                                                                   
a  program  in  place  that  is  widely  available.  Alaska's                                                                   
program, even with the modest  credit criteria in place since                                                                   
1998,  is an anomaly  in terms  of how  widely available  the                                                                   
loan is. She estimated that 13  to 15 other states have taken                                                                   
some sort of action.                                                                                                            
9:42:37 AM                                                                                                                    
Senator  Thomas requested  the  default rate  on the  student                                                                   
loans  in Alaska.  Ms. Barrans  responded  that the  seasoned                                                                   
rate after aging  the loans into repayment for  several years                                                                   
is over of 11 percent.                                                                                                          
Co-Chair Stedman asked if the  default rate was changing. Ms.                                                                   
Barrans answered  that the default  rate has vastly  improved                                                                   
since the  first decade  of lending; one  of the  things that                                                                   
prompted   the  1998   credit   review   was  default   rates                                                                   
approaching  30 percent.  The  commission  hoped that  adding                                                                   
credit  criteria would  be sufficient.  She  opined that  the                                                                   
program would  have gone forward if  it had not been  for the                                                                   
meltdown in the  credit markets and the change  in posture by                                                                   
rating agencies and investors  with respect to the underlying                                                                   
loans. However,  the effect of  the economy in the  past year                                                                   
and a half has permanently changed  the ways rating agencies,                                                                   
banks, and investors view underlying assets for loans.                                                                          
Senator  Olson  commended  the commission  for  bringing  the                                                                   
default rate  down and  asked what kind  of losses  the state                                                                   
has had to cover.                                                                                                               
9:45:02 AM                                                                                                                    
Ms.  Barrans  responded  that  the  commission  continues  to                                                                   
aggressively  collect  on  default   loans.  She  noted  that                                                                   
students at  smaller debt levels usually  default, especially                                                                   
students  who did not  complete school.  The average  default                                                                   
debt is less than $20,000.                                                                                                      
CHARLENE   MORRISON,   CHIEF    FINANCIAL   OFFICER,   ALASKA                                                                   
COMMISSION   ON  POSTSECONDARY   EDUCATION,   DEPARTMENT   OF                                                                   
EDUCATION  AND EARLY  DEVELOPMENT, reported  that the  dollar                                                                   
value of the commission's loans  in default is $46 million in                                                                   
Co-Chair Stedman asked for the  definition of default status.                                                                   
Ms.  Morrison  replied that  a  loan  is  in default  when  a                                                                   
borrower  is  over  270  days   past  due  on  their  current                                                                   
repayment plan.                                                                                                                 
Co-Chair Stedman  wondered if the statistics  included anyone                                                                   
who  was outside  their  original repayment  schedule,  which                                                                   
would include restructuring.                                                                                                    
9:48:28 AM                                                                                                                    
Senator Olson asked  how much borrowers were  in default. Ms.                                                                   
Morrison answered approximately  $40 million as of 12/31/2008                                                                   
[Note:  Ms.  Morrison  changed  the  default  number  to  $82                                                                   
million at the end of the meeting].                                                                                             
Senator Olson asked  how many borrowers in default  have been                                                                   
written  off  completely.  Ms.   Morrison  replied  that  the                                                                   
commission  writes  off  loans   after  a  student  has  been                                                                   
delinquent  for   seven  years.   Prior  to  that   time  the                                                                   
collection  process can  be used.  The  total principal  plus                                                                   
interest to be written off is approximately $5 million.                                                                         
Senator  Olson  queried  the   forecasted  default  rate  for                                                                   
students who will be impacted  because of the proposed credit                                                                   
rating. Ms. Morrison replied that  they expect the rate to be                                                                   
less because of more co-signers.  She could not give a dollar                                                                   
Senator Thomas wondered how many  individuals are represented                                                                   
in the  $40 million  default total and  asked the  process of                                                                   
collections. Ms. Morrison answered  that she did not know how                                                                   
many  individual  borrowers were  in  default,  but said  she                                                                   
would get the information.                                                                                                      
9:51:29 AM                                                                                                                    
Ms. Barrans  explained the  collection process, which  begins                                                                   
at 15 days past due and includes  reminder notices on monthly                                                                   
statements, phone calls, and counseling  borrowers on ways to                                                                   
avoid being delinquent or in default.  Once a borrower is 180                                                                   
or more days  past due, there are collection  levers that can                                                                   
be  used, including  garnishment  of wages  or the  permanent                                                                   
fund dividend  and liens on  Alaskan property. After  a year,                                                                   
the commission  will transfer  the borrower  to a  collection                                                                   
Co-Chair Stedman opened public testimony.                                                                                       
LEE DONNER,  MANAGING DIRECTOR,  FIRST SOUTHWEST  COMPANY and                                                                   
ADVISOR,  ALASKA  STUDENT  LOAN  CORPORATION  (testified  via                                                                   
teleconference),  explained that  the market for  securities,                                                                   
the  proceeds  of  which are  used  for  alternative  student                                                                   
loans, has changed dramatically  in the last year and a half.                                                                   
A recent review  of current market conditions  and the status                                                                   
of  alternative loan  programs  around  the country  revealed                                                                   
that  there  have  only  been   three  tax-exempt  fixed-rate                                                                   
alternative loan  financings executed  by state agencies,  or                                                                   
tax  exempt  issuers in  the  category  of the  student  loan                                                                   
corporation. Most  of the programs require a  FICO (or credit                                                                   
quality) score for  the borrower or co-signer of  670 to 720.                                                                   
The  current standard  for  up-front  fees to  offset  losses                                                                   
ranges from  4 to 7 percent of  the face amount of  the loan,                                                                   
depending on  whether there is  a co-signer. For  alternative                                                                   
loan  programs   with  very  good   default  history   and  a                                                                   
significant duration  of good  history, the rate  ranges from                                                                   
7.5 to  8 percent. For programs  with bad default  history or                                                                   
new  start-up programs,  the rate  ranges  from 8  to over  9                                                                   
Mr. Donner  referred to  a recent  comparable example  in the                                                                   
market place:  Sallie Mae, or  the Student Loan  Corporation,                                                                   
did a $1.5  billion financing. To obtain  an investment-grade                                                                   
rating, Sallie Mae had to over-collateralize  the transaction                                                                   
by almost  50 percent. The average  FICO score for  the loans                                                                   
involved was 726 and the interest  rate on the debt they sold                                                                   
ranged  over  three  months  from 425  to  750  basis  points                                                                   
because it was for alternative loans.                                                                                           
Mr. Donner stated that the provisions  in HB 109 were prudent                                                                   
and necessary,  and as  restrained as realistically  possible                                                                   
for refinancing in current market conditions.                                                                                   
9:56:58 AM                                                                                                                    
Mr.  Donner  strongly  recommended  passage of  the  bill  as                                                                   
advisor to  the state and to  a number of other  student loan                                                                   
entities struggling with the same market conditions.                                                                            
Ms. Morrison corrected her earlier  total of loans in default                                                                   
from $40 million to $82 million.                                                                                                
9:58:15 AM          RECESSED                                                                                                  
3:09:28 PM          RECONVENED                                                                                                
The meeting was adjourned at 3:09 PM.                                                                                           

Document Name Date/Time Subjects
Amendment 1 Version E 2.pdf SFIN 4/1/2009 9:00:00 AM
SB 57
articles and back-up.pdf SFIN 4/1/2009 9:00:00 AM
HB 109
Letters of Support SB57.pdf SFIN 4/1/2009 9:00:00 AM
SB 57
SB57-EED-ESS-amendment_3-31-09Fiscal NoteDraft.pdf SFIN 4/1/2009 9:00:00 AM
SB 57
HB172 DOR GeFONSI.pdf SFIN 4/1/2009 9:00:00 AM
HB 172
Briefing on ASLC Liquidity Issues and Proposed Paln of Action.pdf SFIN 4/1/2009 9:00:00 AM
HB 109
Chart from ACPE website explaining loans that are affected by Hb 109.pdf SFIN 4/1/2009 9:00:00 AM
HB 109
HB 109 sponsor statment.pdf SFIN 4/1/2009 9:00:00 AM
HB 109