03/10/2011 02:00 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB65 | |
| SB66 | |
| SB87 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 65 | TELECONFERENCED | |
| *+ | SB 66 | TELECONFERENCED | |
| += | SB 87 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 10, 2011
2:03 p.m.
MEMBERS PRESENT
Senator Dennis Egan, Chair
Senator Joe Paskvan, Vice Chair
Senator Linda Menard
Senator Bettye Davis
Senator Cathy Giessel
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 65
"An Act relating to the procurement of supplies, services,
professional services, and construction for the Alaska
Industrial Development and Export Authority; relating to the
definition of 'own' for the economic development account;
relating to the definitions of 'development project', 'plant',
'facility', and 'project' for the Alaska Industrial Development
and Export Authority; and providing for an effective date."
- HEARD & HELD
SENATE BILL NO. 66
"An Act creating a new markets tax credit assistance guarantee
and loan program within the Alaska Industrial Development and
Export Authority; and providing for an effective date."
- HEARD & HELD
SENATE BILL NO. 87
"An Act establishing a program in the Department of Commerce,
Community, and Economic Development for payment of grants to
health care providers for care of patients who are 65 years of
age or older."
- MOVED SB 87 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 65
SHORT TITLE: AIDEA: PROCUREMENT; PROJECTS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/24/11 (S) READ THE FIRST TIME - REFERRALS
01/24/11 (S) L&C, FIN
03/10/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: SB 66
SHORT TITLE: AIDEA: NEW MARKETS TAX CREDIT PROGRAM
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/24/11 (S) READ THE FIRST TIME - REFERRALS
01/24/11 (S) L&C, FIN
03/10/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: SB 87
SHORT TITLE: GRANTS FOR SENIORS' MEDICAL CARE
SPONSOR(s): SENATOR(s) FRENCH
02/11/11 (S) READ THE FIRST TIME - REFERRALS
02/11/11 (S) L&C, FIN
03/01/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
03/01/11 (S) Heard & Held
03/01/11 (S) MINUTE(L&C)
03/10/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
MARK DAVIS, Economic Development Officer
Alaska Industrial Development and Export Authority (AIDEA)
Anchorage, AK
POSITION STATEMENT: Supported SB 65 and SB 66.
TED LEONARD, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Anchorage, AK
POSITION STATEMENT: Supported SB 65 and SB 66.
DANIEL WHITE, Associate Vice Chancellor for Research
University of Alaska Fairbanks (UAF)
Fairbanks, AK
POSITION STATEMENT: Supported SB 65.
SENATOR FRENCH
State Capitol Bldg.
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 87.
BOB DOLL, President
Retired Public Employees of Alaska (RPEA)
Juneau, AK
POSITION STATEMENT: Supported SB 87.
MARIE DARLIN
AARP Capital City Task Force
Juneau, AK
POSITION STATEMENT: Sponsor of SB 87.
ACTION NARRATIVE
2:03:39 PM
CHAIR DENNIS EGAN called the Senate Labor and Commerce Standing
Committee meeting to order at 2:03 p.m. Present at the call to
order were Senators Giessel, Menard, and Chair Egan.
2:04:23 PM
SB 65-AIDEA: PROCUREMENT; PROJECTS
CHAIR EGAN announced SB 65 to be up for consideration.
MARK DAVIS, Economic Development Officer, Alaska Industrial
Development and Export Authority (AIDEA), introduced himself.
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), introduced himself and thanked the
committee for inviting them to testify. He stated that SB 65 is
in a series of bills that continue to update AIDEA's ability to
help the Alaskan economy grow and to more effectively promote
job growth. Specifically, it would do three things: amend the
Procurement Code so that AIDEA could adopt regulations to govern
its own procurement process. This would be giving AIDEA powers
similar to what Alaska Housing Finance Corporation (AHFC) and
other corporations have. However, AIDEA would still have to use
competitive bidding principles that are used throughout the
State Procurement Code. It would still have to provide venders
reasonable and equitable opportunities to participate in the
procurement process. This would allow AIDEA to be more effective
with the private sector as it developed projects, which is their
main process through their procurement code.
MR. LEONARD said they believe the State Procurement Code was
designed for a certain purpose and AIDEA is "a little off-
center" of that based on the fact that it works with the private
sector to develop projects.
2:06:24 PM
He said the second thing this measure would do is enable AIDEA
to directly invest in a Limited Liability Corporation (LLC) or a
corporation for the purpose of owning or participating in the
development and ownership of a project. It could only be for the
project; it couldn't be a corporation that AIDEA could do many
things with. It would be a specific purpose entity that could
only be used to own that project.
Last year, he explained, with the help of this committee, AIDEA
passed legislation under the project development section of its
code that allowed their ability to participate in a project by
owning just a share or a portion of a project. As they started
going through that process, they found out that the most
effective vehicle the private sector likes to use is a specific-
purpose, Limited Liability Corporation or a corporation. Since
that's not specifically allowed in the statute, AIDEA can't use
that vehicle to provide that type of ownership model.
2:07:43 PM
MR. LEONARD said the third change is in sections 3 through 5
that update and expand the types of development projects AIDEA
can participate in. Several years ago they went through a
strategic plan and identified seven or eight economic sectors
that they believe AIDEA could help through investing in economic
infrastructure. The definitions and current code target AIDEA's
projects to tourism, energy, natural resources and industrial
manufacturing only. This measure would expand those definitions
and ensure they could actually help the economic sector with
things like communications, health care, logistics and ensuring
a healthy federal presence in Alaska (an important part of
Alaska's economy).
SENATOR DAVIS joined the committee.
MR. DAVIS commented that the sectors they want to add are based
on things that had actually been requested. For example, AIDEA
was approached by a federal agency that wanted them to
construct, finance, and then lease back to the federal agency, a
facility that would support the bases and the military in
Alaska. Unfortunately, the Department of Law (DOL) said AIDEA is
not authorized to do that. So, this bill attempts to modernize
what they do and current statute does not authorize AIDEA to do
communication, health care or military projects.
2:10:30 PM
SENATOR MENARD said whenever the legislature increases AIDEA's
ability to deal with LLCs and corporations, they also increase
the risk, and that is why the legislation was written that way.
She asked what the increased risk to AIDEA would be if this bill
goes forward.
MR. LEONARD responded that one of the reasons the private sector
uses LLCs and corporations is to shield their liability more to
the amount that is invested in a program. But when AIDEA owns a
project or a portion of it, they actually put up its whole
balance sheet to back it. So, this amendment will modernize
AIDEA's ability to protect its assets and actually decreases its
risk. He added that when the project development legislation was
originally written, LLCs were not even part of Alaska law.
Regarding the potential risk of exposure by expanding AIDEA's
ability to develop more projects, he explained that they believe
partnering with the private sector in a project instead of being
the sole owner, as long as they go through the full due
diligence process, will make the projects even better, and will
actually give AIDEA more tools to help fulfill its mission.
SENATOR MENARD asked if they could amend AS 44.88.900(c) so
roads could be a component.
MR. DAVIS answered that there is a legal issue about whether
AIDEA can build a road that does not actually go to a natural
resource project or to a project that would be expanded under
these definitions. So, for instance, the DeLong Mountain
Transportation Corridor at Red Dog that AIDEA owns, goes
directly from the mine to the port, and is statutorily correct.
But if AIDEA were going to build an industrial road, say in the
Ambler mining district; that would be a corridor; so they would
partly fund it. But the actual roads to the mines or the rigs
would be built by somebody else. He explained that the models of
developing roads have changed, and a lot of states are
developing the basic industrial road up to an area. Then each
company is responsible for getting the next couple of miles out
to their own project, which is appropriate.
The trouble is AIDEA could issue a bond, and the bond council
has to be very sure it can legally be done. So, again that is
why they are seeking clarification from the legislature.
2:15:07 PM
SENATOR MENARD stated that it says "may" not "shall".
MR. DAVIS said that is correct. He added that they were
approached by the federal government to build a health care
facility with a Native corporation in rural Alaska, a project
that can't be done with conventional financing because it's in a
non-conforming area and banks don't want to lend out there. If
it was leased to the federal government, there is very little
risk to AIDEA and it's a good project. Again, leasing to the
military is of limited risk. Actually, some of their proposed
projects have good rates of return with limited risk.
SENATOR MENARD asked them to talk about the communication piece.
MR. LEONARD replied that AIDEA could be involved in bringing
broadband to rural Alaska; the federal government and everyone
is looking at being able to bring faster communications into the
rural areas. If AIDEA had this as a sector, they could invest
with a utility in the big towers that would be needed. And
again, as long as you are partnering with a utility, the risk is
fairly limited, and with the federal government being involved
that makes it even more limited.
He said that AIDEA would have to somehow tie broadband into
helping with one of their projects, like a mine's
communications. Tying it to one of the four definitions is a
circular activity and they would prefer that it be "straight
cut." He stressed that the definition has to truly show that a
project is going to provide an economic development benefit for
AIDEA to be involved.
SENATOR MENARD mused that MatSu is involved in fiber optic right
now for its schools, so that wouldn't be an economic issue.
MR. LEONARD responded if the utilities were involved, AIDEA
would have to see the projects themselves and decide what kind
of economic development it was. This bill would allow them to be
in that sector.
MR. DAVIS said they were approached Monday by one of the largest
telecommunications companies in the state with a proposal to
take broadband to particular areas of rural Alaska. But it can't
expand beyond that without "mezzanine financing," which AIDEA
could provide. Doing a whole project at once cuts the cost down
measurably, but until the statute is changed, they can't discuss
it. If this bill goes through, AIDEA would see if there is an
economic model that could provide broadband to a large part of
the state that could be used with the company, and then be paid
back over time.
2:19:32 PM
DANIEL WHITE, Associate Vice Chancellor for Research, University
of Alaska Fairbanks (UAF), supported SB 65. He was charged by
Chancellor Brian Rogers to lead the Office of Intellectual
Property and Commercialization for the University, and one
critical element of economic development is moving research and
development and technology into the private sector. When UAF
licenses technology to the private sector, those businesses gain
competitive advantage in the global market. In order for this
critical link in economic development to occur, businesses have
to have the capability to take advantage of these emerging
opportunities. This often requires capitalization, facilities
and equipment. SB 65 would allow AIDEA to help businesses take
advantage of these opportunities, to contribute to the
University's mission of putting R&D into the private sector and
provide long term economic development opportunities. It will
benefit small businesses that lead to job growth and economic
diversification for the state.
CHAIR EGAN said that completed public testimony and that SB 65
would be held in committee.
2:21:44 PM
SB 66-AIDEA: NEW MARKETS TAX CREDIT PROGRAM
CHAIR EGAN announced SB 66 to be up for consideration.
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), said SB 66 would help a very
successful federal program, the New Markets Tax Credit Program,
that is designed to use tax credits to spur development by
private investors into low income census tracts. This program
allows two types of investors to invest in a project; the two
components are a private investor with capital and a financial
institution providing credit. The program was designed to allow
a project seven years to pay interest only on the capital it has
gotten -in essence allowing the project to "gain its legs" in
order to use conventional financing.
2:23:23 PM
MARK DAVIS, Economic Development Officer, Alaska Industrial
Development and Export Authority (AIDEA), explained that this
bill permits AIDEA to work with the existing U.S. Treasury tax
credit program. Right now AIDEA has a small guarantee program
that does not permit it to make guarantees of loans in
conjunction with this federal program. The essence of SB 66 is
to amend AS 44.88.700 to allow AIDEA to issue loan guarantees
and to make, as a last resort, its own direct loans for the debt
side of a new market tax credit deal.
The ways those work essentially is that investors who have tax
liabilities put their own equity (usually up to 30 percent) into
the project in a rural area or an area that has high poverty
rates and then the rest is borrowed from a bank. But the bank
has to be able to do two things. First, it has to take interest
only payments for seven years and then it has to agree to not
foreclose. Well, recently with the credit crunch, banks have
been reluctant to make those loans, so the program has stalled
in some states, including Alaska.
MR. DAVIS said that through Alaska Growth Capital, Alaska has an
allocation of new market tax credits, and has been in contact
with other companies that have those credits. He did an analysis
and talked to companies that do this kind of work, including
Alaska Growth Capital, and they recommended that if AIDEA could
guarantee the loan portion of a deal or if it could issue its
own loans then it would get the program going. So, AS 44.88.700
says basically that AIDEA could guarantee a bank loan in
conjunction with a new market tax credit. He said these loans
have a very low default rate, and for a very simple reason. The
investors who put their money directly in the project and who
get the tax credits can only take so much percentage of a credit
- up to 300 percent - over seven years. If before seven years
has elapsed the project has not cash-flowed, then the equity
investors owe all their taxes back to the IRS with interest and
penalties, a "tax capture." When these investors make their
analysis of what to invest in, they are very careful, making the
defaults very low. By offering guarantees, AIDEA could free up
the program without a great deal of risk.
AS 44.88.710 provides that a guarantee does not create a debt or
liability to the state - so it would only apply to AIDEA and not
the state government, he said.
AS 44.88.715 establishes applicant qualifications; that is AIDEA
would reserve the right to guarantee loans or to make loans only
to projects they agree with. Just because a deal qualifies for
new market tax credits doesn't mean that they would want to be
in it.
MR. DAVIS said that AS 44.88.720 requires an applicant to
provide certain information to AIDEA, which would be set by
regulation, and an economic benefit analysis. This is not
required under the federal law for the tax credits, but AIDEA is
an economic development agency, so they want to make sure if
they offer a guarantee or a loan that it actually creates the
economic benefits they are charged by statute to create.
2:26:43 PM
He said AS 44.88.730 establishes the conditions for a loan
guarantee while section .740 requires a financial institution
holding the guarantee to service the loan. That is to reduce
AIDEA's costs; it means if they guarantee the loan, the bank
will still deal with the collection and all the other costs.
AIDEA is just not set up to do that and is not trying to hire
more employees.
MR. DAVIS said AS 44.88.750 allows AIDEA to leverage the loans.
This means that AIDEA could make a direct loan, but probably
they would not do it frequently. If no bank steps forward and if
the new market tax credit seems solid economically and if it
would create a lot of jobs or if it was in a rural area, they
might sometimes step forward. But this language just gives them
the discretion to do that; it doesn't require them to do so.
AS 44.88.760 sets a cap at $50 million, so this program won't
"take over the agency" and AIDEA can continue to do its other
programs.
MR. DAVIS concluded the analysis saying AS 44.88.770 is a
housekeeping provision, which says the AIDEA board can adopt
appropriate regulations to implement the program.
2:28:14 PM
SENATOR MENARD asked why they decided on capping it at $50
million and if the IRS gives the "tax capture" a form number.
MR. DAVIS answered that they recommended the $50 million limit,
because they can make that kind of commitment without affecting
their other programs, their current reserves being about $350
million. He said new market tax credits deals tend to be very
large, $20-30 million, and complicated with a lot of parties.
That means they could probably do one a year, which is what they
should be doing because it would take a lot of work. The $50
million was picked to do one or two a year.
The answer to her second question was there is no particular
section under the codes; this is actually in a 51-page IRS
circular, which he offered to get a copy of.
A new report put out by the New Market's Tax Credit Coalition, a
private group, points out that unlike most federal programs,
using these tax credits costs the government an average of
$12,000 per job, about the lowest of all job incentive programs
in the United States.
SENATOR MENARD asked if they would consider lowering the figure
from $50 million to $30 million.
MR. LEONARD said it should be at $50 million, and $30 million is
the absolute lowest it could go and still be a viable program.
CHAIR EGAN thanked everyone for their comments and held SB 66.
2:31:36 PM
SB 87-GRANTS FOR SENIORS' MEDICAL CARE
CHAIR EGAN announced SB 87 to be up for consideration.
2:31:40 PM
SENATOR FRENCH, sponsor of SB 87, said he would answer
questions.
CHAIR EGAN noted that some people had signed up to testify.
2:32:28 PM
BOB DOLL, President, Retired Public Employees of Alaska (RPEA),
said they supported SB 87.
2:32:50 PM
SENATOR PASKVAN joined the committee.
MR. DOLL said at some point he would present some survey data
and offer a financial solution to the dilemma of unfunded
obligations left for this legislature. Buy, today his message is
simple and straight forward - an appeal for simple equity. He
explained that decades ago the State of Alaska opted to shift
its retiree health care burden to Medicare when the retiree
reached 65. Retirees didn't object then and don't object now.
But the federal government has resisted the establishment of a
variable rate for various states envisioning, probably, a
quagmire of appeals and rulings as economic circumstances
changed in each state. The result here has been that health care
providers, particularly in Anchorage and Fairbanks, have turned
away Medicare patients citing inadequate reimbursement rates - a
tragedy for all Medicare eligibles including public employee
retirees. From the viewpoint of pure economics, the situation
exists now where a state or municipal retiree may not be able to
find medical care in two of Alaska's major population centers.
For any retiree who requires medical attention on a regular
basis the predictable reaction for the over-65 person is to move
out of the state and to one where the doctors will serve his
medical needs. If he or she chooses to do so, the state and
municipalities lose all of the economic benefit that should flow
from having that person as a resident.
He mentioned that members are familiar with the Alaska
Commission on Aging and ISER reports that indicate what the
value of having those retirees in-state can be. The retiree
continues to receive a retirement check, but they can spend it
elsewhere. That is not a logical objective for Alaska and this
bill gives them a chance to correct it. He said approximately
one-third of RPEA members live out-of-state and that's not a
number they are anxious to increase.
2:35:50 PM
MR. DOLL asked them to imagine that they had completed 30 years
of public service in Alaska and paid into their retirement fund
every month and made a deal and kept their end of the bargain.
But on your 65th birthday, you find that overnight, primary
medical care is no longer available - for reasons that have
nothing to do with any of the participants of the state or the
individual. It seems like a deception to members who have
enjoyed medical insurance coverage since they retired but when
they reach 65 suddenly find it's no longer available and the
state severs its connection with them for this purpose with no
apparent further concern. No one has planned it that way, but
the sense of deception persists.
He said there is a solution; the congressional delegation has
done its part in convincing the Congress to make an exception to
the normal Medicare rules. The state may legally overcome the
reimbursement rate gap and SB 87 is a vehicle to both fulfill
Medicare eligible expectations and to keep retirees in the
state. He urged its passage.
SENATOR DAVIS asked if once you are 65 you are automatically no
longer covered by the state and have to use Medicare. You can't
go back and use the retirement plan at all. But up to age 65 you
can.
MR. DOLL replied that is correct.
MARIE DARLIN, AARP Capital City Task Force, said they supported
SB 87. She said they have all the same issues Mr. Doll stated.
Even with state health insurance, when you hit age 65, Medicare
becomes first provider and unless you have that, the rest of it
isn't worth anything. From a federal retiree viewpoint, the same
thing applies. The problem is when you have Medicare as primary
provider and some doctors won't accept Medicare patients.
2:39:07 PM
CHAIR EGAN closed public testimony.
SENATOR PASKVAN moved to report SB 87 from committee with
individual recommendations and attached fiscal note. There were
no objections and it was so ordered.
2:39:51 PM
At ease from 2:39 to 2:41 p.m.
2:41:47 PM
Finding no further business, Chair Egan adjourned the meeting at
2:41 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 65 Bill.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 65 |
| SB 65 SectionalAnalysis.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 65 |
| SB 65 FiscalNote.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 65 |
| SB 65 RequestForHearing.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 65 |
| SB 66 Bill.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 66 |
| SB 66 Fiscal Note.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 66 |
| SB 66 House ETD Committee Q&A.PDF |
SL&C 3/10/2011 2:00:00 PM |
SB 66 |
| SB 66 Request for Hearing.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 66 |
| SB 66 Sectional Analysis.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 66 |
| SB 66 White Paper-New Markets Capital Company.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 66 |
| SB 87 AARP support lttr.PDF |
SL&C 3/10/2011 2:00:00 PM |
SB 87 |
| SB 87 Presentation Sectional.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 87 |
| SB087-CCED-DCRA-02-25-11.pdf |
SL&C 3/10/2011 2:00:00 PM |
SB 87 |