Legislature(1993 - 1994)
03/03/1994 02:25 PM Senate L&C
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SENATE LABOR AND COMMERCE COMMITTEE
March 3, 1994
2:25 p.m.
MEMBERS PRESENT
Senator Steve Rieger, Vice-Chairman
Senator Judy Salo
MEMBERS ABSENT
Senator Tim Kelly, Chairman
Senator Bert Sharp
Senator Georgianna Lincoln
OTHERS PRESENT
Senator Al Adams
COMMITTEE CALENDAR
SENATE CONCURRENT RESOLUTION NO. 12
Requesting the governor to have prepared a report and
recommendation concerning the disposition of certain assets of the
Alaska Housing Finance Corporation in order to meet the revenue
shortfalls in the state's budgets and to meet other financial
requirements.
SENATE RESOLUTION NO. 3
Declaring support for the Alaska Tourism Marketing Council and
support for full funding of the Alaska Tourism Marketing Council.
PREVIOUS SENATE COMMITTEE ACTION
SCR 12 - NO PREVIOUS ACTION.
SR 3 - NO PREVIOUS ACTION.
WITNESS REGISTER
Will Gay, CEO/Executive Director
Alaska Housing Finance Corporation
Department of Revenue
P.O. Box 101020
Anchorage, Alaska 99510-1020
POSITION STATEMENT: Opposed SCR 12.
Mark Cameron, Chief Financial Officer
Alaska Housing Finance Corporation
Department of Revenue
P.O. Box 101020
Anchorage, Alaska 99510-1020
POSITION STATEMENT: Opposed SCR 12.
Jerry Burnett, Committee Aide
Legislative Budget and Audit Committee
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Testified on SCR 12.
Bill Kelder, Aide
Senator Jay Kerttula
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Introduced SR 3.
Dennis Brandon
Westmark Hotels Alaska/Yukon
880 H Street
Anchorage, Alaska 99501
POSITION STATEMENT:
ACTION NARRATIVE
TAPE 94-13, SIDE A
Number 001
VICE-CHAIRMAN STEVE RIEGER called the Labor and Commerce Committee e
meeting to order at 2:25 p. m. as a work session for the purpose of
hearing testimony on SCR 12 and SR 3.
SENATOR RIEGER introduced SCR 12 (STUDY ALASKA HOUSING FINANCE
CORPORATION ASSETS TO LOCATE REVENUE) (AHFC) sponsored by SENATOR
AL ADAMS to the work session, and invited WILL GAY, Executive
Director for AHFC to testify.
MR. GAY suggested there was a misunderstanding in the resolution,
since AHFC does not identify programs considered for "moderate
income."
SENATOR RIEGER invited SENATOR ADAMS to the table to hear MR. GAY
on line from Anchorage answer questions about AHFC.
SENATOR ADAMS explained the reason he introduced the legislation
was because he believed there needed to be a restructuring of AHFC,
to free up excessive cash within the corporation, as well as
addressing the special needs in rural housing. He further
explained the intent of the resolution was to get an independent
assessment of the reserves, and he drew attention to the fiscal
note of $250 thousand.
Number 050
SENATOR ADAMS preferred, rather than having AHFC doing their own in
house assessment, to have their corporate receipts turned over to
either Budget and Audit or the Office of Management and Budget to
get an independent audit to be examined.
SENATOR ADAMS envisioned involvement with an investments and
banking firm to assess the reserves and other assets of AHFC that
relate to the corporation's housing programs which benefit moderate
income persons, to analyze whether or not these reserves could be
sold or otherwise liquidated, and to get an estimate on the amount
of money likely to be obtained from this type of action.
MR. ADAMS explained the mortgage rates are still at the lowest
level in decades; the housing markets, which have been focused on
AHFC's activity in the past decade, is pretty solid, and this is
reflected by stable home values and extreme low vacancy rates. He
declared the AHFC is no longer the lynch-pin in the housing market,
and the mortgage lenders are more cognizant of mortgage rates and
under writing requirements by selling mortgages directly to a
secondary market rather than through AHFC. He used newspaper
advertisements as an example of his evidence.
SENATOR ADAMS claimed AHFC has enormous equity far above other
states in relation to bonds and outstanding mortgage loans, and he
said the State can no longer afford AHFC. He accused AHFC of
discharging staff and keeping the money.
SENATOR ADAMS thought the State would be able to withdraw equity
from AHFC soon if a sale, or disposition of assets can be made by
sale to another firm or investment group, and he reviewed various
ways in which this could be accomplished. He suggested questions
that needed to be addressed such as the difficulty of AHFC to
understand the terms "moderate income."
SENATOR ADAMS said there needed to be a definition of needs for
subsidizing homes for weatherization, energy efficiency, low income
programs, and rural housing. He wanted to know what progress had
been made since these programs were merged within AHFC.
Number 104
SENATOR ADAMS explained the AHFC fiscal note shows they are looking
at an independent financial advisor, and he questioned who this
person would be. His next question was to ask AHFC for their
expected program demand, and he listed other corporations with
triple A ratings. He asked if AHFC sold mostly to those
corporations such as the Federal National Mortgage Association,
(FNMA) Federal Home Loan Mortgage Corporation, etc.
SENATOR ADAMS asked, in reference to the letter from MR. GAY, how
much was the hold back, the assets and over-collateralization
requirement, and the terms of the defeasance clause presently in
the AHFC financial statement. He asked why we need a housing
agency with a triple A rating when other corporations already have
them.
SENATOR ADAMS explained he had looked at the latest financial
statements, and the annual report lists approximately $3 billion in
FY92 in mortgage loans and back securities, in FY93 approximately
$2.5 billion, and he asked for an explanation for the $443 million
run-off. SENATOR ADAMS wanted to know if the State was duplicating
services already available in the marketplace. He wanted an
explanation for the $2.7 billion in outstanding bonds, notes, etc.,
and the $2.5 in mortgage loans and mortgage backed securities.
SENATOR ADAMS also asked how much cash above the $2.5 billion in
mortgage loans is pledged as collateral on the outstanding notes,
and what is the cost to AFHC to do refunding of bonds to free up
the cash. He talked about the approximately $1.8 billion that
could be liquidated at this time, and he asked for any collateral
constraints against these investments. He asked for an accounting
and the documentation.
Number 154
SENATOR ADAMS concluded by asking about the net-worth requirement
for FNMA, GNMA, and FHLMC, and how much matching money is required.
He suggested, under certain circumstances, this should be examined
carefully by the committee. If we do have money to liquidate, he
asked if an appropriation bill be available by the Labor & Commerce
Committee to appropriate assets directly to the general fund to
take care of some of the deficit.
SENATOR ADAMS noted the resolution asked for a study completed by
May 15, which was unrealistic, but he thought an audit could be
started. He thought the audit should be performed by Budget and
Audit.
SENATOR RIEGER invited MR. GAY to make a response.
MR. GAY explained there were many questions asked by SENATOR ADAMS
that would need time to be answered, and he expressed a preference
for answering them in writing, but he offered to comment in a
general way.
MR. GAY commented the legislature just did restructure the Alaska
Housing Finance Corporation at the end of 1992, but he said he has
not had a chance to report on the restructuring. He said he was
pleased that SENATOR ADAMS had read their annual report, but he
explained AHFC was not a large participant in the private markets.
He described 1600 units of public housing, 1400 units provided by
HUD vouchers, their rural housing program, as well as other housing
programs. He claimed 1100 rural homes were being built with
assistance from the supplemental housing program in cooperation
with HUD.
Number 203
MR. GAY described the weatherization commitments in rural Alaska
leading to some innovative technology in the last few months that
may solve the foundation problem, and he related some examples.
MR. GAY discussed some development strategies mandated by HUD for
participation programs in Alaska, which inventories the needs in
Alaska. He explained the receipt of HUD funds for low income
housing in Alaska over the last year, and he further explained 360
homeless families had been housed in communities throughout Alaska.
MR. GAY said legislation was pending, in a bill by REPRESENTATIVE
EILEEN MACLEAN, to make it easier for rural Alaskans to own multi-
family housing instead of having absentee landlords. He promised
there were numerous programs in process in addition to managing and
trying to improve housing. MR. GAY said AHFC had a goal to spend
money to refurbish some public housing that has been allowed to
deteriorate over the years.
MR. GAY reviewed the programs in Alaska in which AHFC was involved,
and he touched on SENATOR ADAM'S question about his concerns with
over collateralizing and urged the legislature to allow time for
them to work on the solutions to SENATOR ADAM'S questions.
MR. GAY reminded SENATOR KELLY of their work with the University to
find ways to participate in student housing, and he also talked in
terms of participation with the federal government in leveraging
funds to accomplish this goal.
MR. GAY explained the audit process with SENATOR FRANK for the last
four weeks in working with an auditor from the Legislative Budget
and Audit Division, and he reviewed the determinations of that
audit which will be presented in Juneau. He also explained an
independent assessment to determine reserves in the area of
available cash.
Number 258
MR. GAY described the work of the auditor on the other side, which
he thought was worthwhile for the legislature to review such as
their involvement in programs in Alaska. He also asked the
legislature to look at the implications in taking large sums of
money when AHFC is praised by their peers in other housing agencies
across the United States as the only state housing agency with a
general obligation rating of A+, which provides the agency access
to capital markets to do many things the legislature has requested
them to do.
MR. GAY explained, in reference to SENATOR ADAMS' request, there
were ways AHFC could help the general fund, rather than destroying
the corporation. He predicted the rural population is going to
double by the year 2010, and he reviewed the changing demographics
of the state with the appearance of the large service oriented
businesses such as Cosco, Fred Meyers, and KMART. He explained how
this change in demographics would change the focus to low income
housing.
MR. GAY assured the legislature that AHFC recognizes the problems
and is willing to work with the legislature on providing a dividend
to the state. He asked that they be allowed to give as opposed to
the legislature taking from AHFC.
Number 296
SENATOR ADAMS expressed appreciation for the remarks from MR. GAY
regarding the programs, and he asked how much money would be needed
for the refurbishing, rural housing, weatherization, the first time
buyers, veterans. He felt that AHFC might need about $300 million,
and the excess assets could be re-appropriated back to the general
fund to take care of the deficit.
SENATOR ADAMS referred to the dividends given to the State of
Alaska as being crumbs. In the last five years AHFC has given
about $95.281 million, and he thought it was time the legislature
gave back to the State's deficit program, using the analogy of the
reverse of Robin Hood's exploits.
SENATOR ADAMS urged the legislators to decide on the role of
government, and he didn't think government should be in the
business of housing or the railroad. He ended by again urging MR.
GAY to provide some answers as soon as possible.
SENATOR RIEGER questioned the formula used for the payment of
dividends each year.
MR. GAY deferred his answer to MARK CAMERON, Chief Financial
Officer for the Alaska Housing Finance Corporation.
SENATOR RIEGER suggested the unrestricted net income is net of what
has been pledged to the debt coverage on the bonds. MR. CAMERON
answered he was correct and explained the net income is all of the
assets less expenses that don't relate to restricted assets.
SENATOR RIEGER indicated there had been some questions in the
Senate Finance Committee about this definition, the expenses of the
corporation, as a program that flows through the legislative
process as a grant. He expressed curiosity about the definition of
net income in all of the programs that MR. GAY mentioned whether
some are grants or subsidization of various activities.
Number 349
SENATOR RIEGER asked JERRY BURNETT, Committee Aide to the
Legislative Budget and Audit Committee for SENATOR RANDY PHILLIPS,
to testify.
MR. BURNETT explained the Budget and Audit Committee approved a
comprehensive audit of the programs of AHFC at their September 17,
meeting, and he said the audit was due to be presented to the
committee in preliminary form at the next meeting after the 15th of
March. He further explained at the January 21st meeting of the
Budget and Audit Committee, the audit request was expanded to
include a complete financial analysis of Alaska Housing Finance
Corporation, and to look at the questions raised by SENATOR ADAMS.
He said that financial analysis is due to be released to the
committee on or before MARCH 18, 1994.
SENATOR ADAMS had no questions of the analysis, but he suggested to
SENATOR RIEGER an appropriation bill could be made available rather
than working on his joint resolution. He reiterated his request
that the excess assets from AHFC be appropriated to the general
fund to cover part, portions, or all of the deficit.
There being no other testimony on SCR 12, SENATOR RIEGER proposed
to hold the bill for a quorum.
SENATOR RIEGER introduced SR 3 (SUPPORT OF ALASKA TOURISM MARKETING
COUNCIL) sponsored by SENATOR JAY KERTTULA, and invited his aide,
BILL KELDER, to give a sponsor statement.
MR. KELDER summarized the sponsor statement saying the resolution
calls on the Senate to support the Alaska Tourism Marketing
Council, with full funding of the state's share of the council's
budget at the previous level. He claims the council has done a lot
to stimulate the economy, provide jobs at the local and state wide
levels, and is one of the few programs, created by the legislature,
that actually provides revenue into the state coffers like the
General Fund. He thought it deserved continued support.
SENATOR RIEGER opened the committee to questions on SR 3.
SENATOR SALO clarified the purpose of full funding.
SENATOR RIEGER introduced DENNIS BRANDON, representing the Alaska
Visitors Association, on line from Anchorage.
Number 401
MR. BRANDON explained since 1975 there has been a cooperative
marketing effort to provide a message from Alaska to potential
visitors to Alaska.
MR. BRANDON said in 1988 this relationship was formalized through
legislation of what is now know as the Alaska Tourism Marketing
Council, and he praised the council as doing an amazing job in
establishing Alaska as a most sought after destination. Since its
inception, he said Alaska has seen a steady growth of 8.1% annually
over the past three years. He explained this has been done by
selective and target marketing which continually changes.
MR. BRANDON described the changes in the visitors as seeking more
active vacation experiences than in previous years with more
traditional tourists. He also described the changes in the variety
of experiences presently enjoyed by the tourists and the expansion
of the areas enjoyed by the tourists from Southeast up into the
Kenai Peninsula and the Interior.
MR. BRANDON explained the visitors have enjoyed an expanded season
as well as additional interesting and enjoyable places to visit,
and he gave the Haul Road and the Aleyska Pipeline as examples. He
reviewed the strategic television advertizing in both Canada and
the United States, as well as in magazines to reach these potential
visitors to all parts of Alaska. He described the special Alaska
newspaper sections in major U.S. markets and promotes extensive
mail campaigns to motivate prospective visitors.
Number 449
MR. BRANDON cautioned the legislators there would be a 50%
reduction in funding under the Governor's budget, and he explained
this would virtually eliminate the national advertizing. He said
it would mean that 66% of the U.S. household will no longer see or
respond to Alaska's broadcast advertisements, and the number of all
kinds of sales messages will decrease from 780 million to less than
85 million. He quoted some people as saying the tourists will come
to Alaska regardless as to whether we advertize our destination or
not, but that is not true.
MR. BRANDON explained coming to Alaska is not an impulsive
decision, and it takes nurturing the idea, sometimes for years, to
make it become a reality. He declared it a case of out of sight,
out of mind. Without consistent advertizing travelers are not
reminded of Alaska, and there becomes no impetus to request
information on Alaska for a vacation plan.
MR. BRANDON declared the tourism industry not only helps the state
diversify its economy, it also helps foster a greater understanding
of Alaska. He said the Alaska Tourism Marketing Council is a key
component to the continued success of the tourist growth.
SENATOR SALO questioned whether there would be assistance from the
Department of Revenue.
MR. BRANDON said it is a complex issue, but he had been talking to
the Attorney General's office, the Department of Revenue, and the
Co-Chairs of Finance in both the Senate and House to come up with
a long term solution to a complex issue.
SENATOR RIEGER said he would hold the bill in committee, and stand
in recess to go to the Joint Labor & Commerce Committee.
SENATOR RIEGER recessed the meeting to join the House Labor &
Commerce Committee for a meeting in progress.
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