Legislature(1993 - 1994)

03/03/1994 02:25 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              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                 
 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.                                         
 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                
 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            
 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              
 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              
 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.                                                
 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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