Legislature(2003 - 2004)
05/09/2003 05:42 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
May 9, 2003
5:42 p.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Thomas Wagoner, Vice Chair
Senator Gene Therriault
Senator Georgianna Lincoln
Senator Donny Olson
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 216
"An Act relating to international airports revenue bonds; and
providing for an effective date."
HEARD AND HELD
PREVIOUS ACTION
SB 216 - No previous action to record.
WITNESS REGISTER
Commissioner Mike Barton
Department of Transportation &
Public Facilities
3132 Channel Dr.
Juneau, AK 99801-7898
POSITION STATEMENT: Testified on SB 216
David R. Eberle
Project Manager for the Terminal Redevelopment
P.O. Box 196900
Anchorage, AK 99519-6900
POSITION STATEMENT: Testified on SB 216
Kip Knudson
Deputy Commissioner of Aviation
Department of Transportation &
Public Facilities
3132 Channel Dr.
Juneau, AK 99801-7898
POSITION STATEMENT: Testified on SB 216
Ken Sura
V.P., Landrum & Brown, Inc. Airport Consultants
11279 Cornell Park Dr.
Cincinnati, OH 45242
POSITION STATEMENT: Testified on SB 216
John Steiner
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Answered question regarding SB 216
Tom Boutin
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Answered questions regarding SB 216
ACTION NARRATIVE
TAPE 03-03-19, SIDE A
CHAIR JOHN COWDERY called the Senate Transportation Standing
Committee meeting to order at 5:42 p.m. Present were Senators
Thomas Wagoner, Gene Therriault, Georgianna Lincoln, and Chair
John Cowdery. Senator Donny Olson arrived momentarily. SB 216
was the first order of business.
SB 216-INTERNATIONAL AIRPORTS REVENUE BONDS
CHAIR JOHN COWDERY explained the bill relates to bond funding of
capital improvements for the Alaska International Airports
System [Ted Stevens Anchorage International Airport and
Fairbanks International Airport]. It would increase the total
authorization for international airport revenue bonds and allow
the sale of up to $76,600,000 in new revenue bonds to support FY
04 through FY 06 capital improvement programs. Specifically,
Concourse C at Anchorage International is unfinished and
additional funds are needed by September 2003.
Anchorage International accounts for over ten percent of the
employment in the municipality and everyone agrees that the
project must move forward. Interim meetings are scheduled and he
has asked all Anchorage legislators to participate. The funding
shortfall came as a result of difficulties with design
engineering that didn't meet seismic requirements and additional
costs associated with increased security after 911. Suit will be
filed to address the design errors and he believes the 911 costs
will be reimbursed but, the money was spent and there is a
shortfall.
SENATOR THOMAS WAGONER stated the committee members had already
seen the May 2003 Legislative Briefing [see bill file] and he
would like get basic information on the necessity of the bonds
and the amounts. The bill is primarily a finance bill.
CHAIR COWDERY agreed and said he takes pride in the bill because
much of the language comes from legislation he introduced in
1998. He asked the commissioner to come forward.
COMMISSIONER MIKE BARTON, Department of Transportation & Public
Facilities, said he was ready to give a brief review of the
March 13, 2003 presentation and also had a short presentation on
the financial aspects of the bill, but he was willing to forgo
the presentations and answer questions if that was the will of
the committee.
CHAIR COWDERY asked for the will of the committee.
SENATOR DONNY OLSON said he would like an update from the
commissioner.
COMMISSIONER BARTON explained the Airport Operating Agreement
for the Anchorage and Fairbanks airports is a contract between
the airlines and the airport. It obligates the airlines to pay
for the cost of running the airport and the capital projects on
the airport, including bonded indebtedness and is a common way
of financing capital projects. It also obligates the airport to
secure agreement from the airlines on all costs including
capital projects.
In 1997 the airlines agreed to the terminal redevelopment and
bonds were issued in 1999 and 2002. The proposed issue is the
same as the previous two, it would be insured and is not an
obligation of the state and no general fund money would be used.
Rates and fees charged by the airlines would go toward
liquidating the bonds. Discussions with the airlines have been
ongoing since January and are complex.
SENATOR WAGONER asked about the $10 million insurance policy
that would likely require several million dollars in legal fees
to collect. He asked if the $10 million was calculated into the
$76.6 million figure.
COMMISSIONER BARTON said it is separate.
SENATOR OLSON asked whether he had a letter from Evergreen of
Alaska dated April 28, 2003.
COMMISSIONER BARTON said he received a copy, but he didn't have
it with him.
DAVID R. EBERLE, Project Manager for the Terminal Redevelopment,
explained there have been three areas of cost increase in the
project. One was anticipated and the other two were not so both
the budget and the schedule were impacted. In 1997 both parties
agreed that there would be space increases because the square
footage requirements were just estimates. The needed space
ultimately increased by nearly 86,000 square feet and required
an additional $22 million in construction costs. The agreement
with the airlines was to use the interest earnings from the
bonds to offset that cost. Unexpected were: the cost of delays;
the permitting problems; and 911 and the associated security
requirements.
He referred to page 9 of the May 2003 Legislative Briefing book
to show the cost increases as compared to the original budget.
The original terminal redevelopment was estimated to cost $230
million and the additional square footage ran $22 million.
Permit delays cost $33 million and the security impacts from 911
cost $23 million. The current estimate for the project is $308
million and excludes renovation of the existing A and B
concourses.
He outlined the funding that is currently available for the
project versus the $308 million that is needed as follows:
· Revenue bonds $204 million
· Federal Highway Administration money $ 26 million
· Interest from the bonds $ 24 million
· Additional interest earned $ 5 million
· Total available funding $259 million
· Cost estimate at completion $308 million
· Funding shortfall $ 49 million
Concourse C is a major component of the project and they
estimate the funds will be depleted sometime in September 2003.
Consequently, they are requesting an additional $50 million in
bonding authority to cover the shortfall and complete Concourse
C.
KIP KNUDSON, Deputy Commissioner of Aviation with the Department
of Transportation & Public Facilities, advised there are other
elements in the proposed bonding package. [See bill file.] He
referred to page 18 of the Alaska International Airports System
Business Planning Information handout to show the total $76.6
million requirement:
· Project requirement $50.0 million
· Contribution from IARF ($2.0)million
· Completion of C Concourse $48.0 million
· ANC FY 04 CIP net state match requirement $10.0 million
· FBKS FY 04 CIP net state match requirement $ 3.5 million
· Other financing costs $15.1 million
· Total FY 04 bond requirement $76.6 million
CHAIR COWDERY asked when the last bonds were sold.
DEPUTY COMMISSIONER KNUDSON replied it was in 2002 for the two
year program.
SENATOR GEORGIANNA LINCOLN asked for verification that the
Fairbanks requirement was $3.5 million.
DEPUTY COMMISSIONER KNUDSON said that's what it is for the 2004
to 2006 time frame. He added Fairbanks intended to make terminal
renovations, but they found seismic and hazardous materials
problems and stopped the work. The $3.5 million will match about
$25 million in federal funds for airfield projects in Fairbanks.
SENATOR LINCOLN asked how the money is shifted from Anchorage to
Fairbanks.
DEPUTY COMMISSIONER KNUDSON explained the system used to be cash
financed; they would raise money directly from the airlines to
match the federal dollars. Under the current system, the
proceeds from bond sales are used to match the federal dollars.
With every bond sale, a portion is allocated for Fairbanks
International capital projects.
SENATOR LINCOLN asked if this bonding was available only to
Fairbanks and Anchorage and not Juneau or other areas.
DEPUTY COMMISSIONER KNUDSON replied Juneau International is
municipally owned and they could go out to bond.
CHAIR COWDERY asked Commissioner Barton to explain why this
applies to Anchorage and Fairbanks.
COMMISSIONER BARTON explained the Fairbanks and Anchorage
International airports are operated under a common system.
DEPUTY COMMISSIONER KNUDSON continued to explain that this is an
enterprise system and all the revenues earned from the two
airports are put into a common fund and the expenses are paid
from that fund. The revenues to pay the bond funds are
incorporated into the two-airport system. They are joined
because they serve the same market and each could be considered
an alternate to the other.
SENATOR GENE THERRIAULT asked what period the $3.5 million match
covered.
DEPUTY COMMISSIONER KNUDSON advised it is for projects that will
occur in FY 04 through FY 06.
SENATOR THERRIAULT restated this is money that would be used to
provide the state match to capture federal funds and is not
general fund spending.
DEPUTY COMMISSIONER KNUDSON agreed and added that the state
would use general fund dollars to match federal money for rural
airports. In the international system [AIAS] they are able to
use the bond funds.
SENATOR THERRIAULT asked him to expand his explanation of the
Anchorage requirement.
DEPUTY COMMISSIONER KNUDSON said the FY 04 through FY 06
Anchorage projects are primarily funded with federal dollars.
The $18.4 million is match money for the federal dollars.
Technically that would be the bonding requirement. They can
reduce that by $1 million because they are going to delay a
project from FY 02-FY 03 and they are able to collect PFCs
[$3.50 charge] at the airport and they will apply them as match
money to the federal dollars. The net state match requirement is
$10 million.
He advised they hired a consultant to conduct a feasibility
study and he could explain how they are able to afford the
bonds.
KEN SURA, Vice President with Landrum & Brown, advised the
company is an airport consulting firm that has been working with
the state and AIAS in particular. He advised it was his firm
that prepared the booklet the deputy commissioner referred to
earlier. There are two federal programs to provide for airport
development. First is the Airport Improvement Program (AIP) that
has $3.4 billion appropriated for 2003. More importantly, a new
act was signed in April 2003 to provide an additional $3.5
billion in federal assistance to the airline industry. Of that,
$665 million was earmarked for the TSA [Transportation Security
Administration] and $235 million of that will go to airport
explosive detection systems.
He pointed to page 4 to show:
Changing North American Market
· Expansion of low fare carriers into long-haul markets
· Mainline hub carriers realigning regional flights - 500
miles or less
· Increasing role of regional jets
· Longer-haul transcontinental routes - Alaska Air going
cross country
Key Elements to Industry Recovery
· Needs capacity reduction by reducing aircraft size to
match demands
· Restructure labor agreements for mainline carriers
· Re-aligning existing hub networks
Near Term Forecast
· Need to evaluate potential bankruptcy scenarios
· Need to manage demand/capacity through continuing schedule
reductions
· Industry as a whole should recover by 2005
SENATOR LINCOLN asked for an explanation of realigning the hub
networks.
MR. SURA explained that the airlines that operate hubs, such as
United, Delta, American and Alaska, are trying to balance
activity flowing through the hub so traffic flows more evenly
throughout the day.
CHAIR COWDERY asked what would happen if some of the airlines
that service Alaska aren't able to survive.
MR. SURA replied the AIAS is referred to as an origin and
destination market and a spoke-market. That means there is built
in and basic demand for the service, which provides credit
rating stability. If one airline goes under, another airline
would pick up service for the region. Rating agencies and
industry analysts are more concerned with hub airports because
of the amount of connecting activity that flows through the
hubs. Those are the ones whose credit ratings have been
affected.
SENATOR OLSON said he had a question regarding regional jets
taking over some of the short haul markets. There are a number
of Alaska hauls that are over 500 miles, but most are under that
and he wondered if increased regional flights were anticipated
for Alaska.
MR. SURA replied it wouldn't be to those markets. His comment
related to those markets that Alaska uses that are fed by
Horizon. For instance, to increase their traffic out of Seattle
into Alaska, Alaska Air might rely more on Horizon to feed
passengers into Seattle and they would fly fuller aircraft into
the state.
6:12 pm
SENATOR OLSON said two carriers used to fly out of Juneau, but
now there is just one. Those departing flights have been running
full and he wasn't sure the previous statement was entirely
correct for the Juneau market at least. When there's a single
carrier servicing Nome, Kotzebue, Barrow and Bethel there's no
other way out of those communities if that single carrier goes
under.
MR. SURA asked if his remark related to another airline stepping
in to fill demand.
SENATOR OLSON said it did. Three airlines flew into those areas
in the 1980s and now there is just one and the flights are full.
MR. SURA clarified he was referring to the Anchorage market.
SENATOR THERRIAULT said neither Alaska nor the other airline is
full flying full and if the other airline were to pull out,
Alaska Air wouldn't have to double its flights to meet the
demand.
MR. SURA agreed.
SENATOR THERRIAULT expressed the concern that although the
market is served, there wouldn't be as many landings to service
the debt load.
MR. SURA explained the new operating agreement diversifies the
way airlines pay fees and charges at the airport system; it's
not all dependent on landing fees. [Page 10]
MR. SURA continued his presentation and noted page five shows
the trend line for revenue enplanements for the entire U.S.
industry. It shows industry specific events and the recovery
time from each. Although revenues were above the trend line
prior to September 11, that significant event and the subsequent
downturn in the economy led them to predict a three to four year
recovery period before getting back to the trend line.
SENATOR LINCOLN referred to the chart and asked for the
significance of the red lines.
MR. SURA said they indicate how long it took to recover from
each event.
SENATOR LINCOLN noted the chart ended at 2001.
MR. SURA explained the 2002 data hasn't been assembled.
Page six has two charts. One shows that major air cargo markets
contracted severely in 2001 and are now recovering while the
other forecasts that Asia cargo markets served from AIAS will
lead the industry in growth out to 2021.
When they prepare a feasibility study they look at enplanements
as one of the three or four key airport activities. Page seven
shows enplanements and is one half of the passenger equation,
which is people getting on an aircraft at Anchorage or Fairbanks
to depart to some other destination. The 2002 feasibility study
was completed just six months after September 11 and actual data
shows the estimates were conservative in the out years. Revised
annual growth rates show a 2.6 percent increase for the next
five years and 2.7 percent for 2007 to 2010.
SENATOR LINCOLN commented that Anchorage probably accounts for a
majority of the enplanements.
MR. SURA agreed; about 92 percent of the enplanements come from
Anchorage.
CHAIR COWDERY noted Air France recently stopped service in and
out of Fairbanks.
MR. SURA pointed to the total gross take off weight figures on
page eight, which are used to determine actual landing fees. He
noted the actual weights are tending to be about ten percent
above what they predicted for FY 04. He pointed to the chart to
show how fast the market recovered in terms of total take off
weight, which includes both passenger and cargo.
SENATOR OLSON said he though he was talking about the landing
fees related to the landing weight.
MR. SURA said it is the denominator in the calculation of the
landing fee.
SENATOR OLSON asked why look at a total gross take off weight if
that's the case.
MR. SURA replied take off weight is used for the landing fee
calculation. He added some airports use take off weight and some
use landing weight.
Page nine shows the air cargo tonnage. The previous study
doesn't extend beyond FY 03. The revised forecast anticipates
growth rates of 6.2 percent for FY 02 to 07 and 3.2 percent for
FY 07 to FY 10.
Airline rate and charge methodology is addressed on page 10.
Specifically, maintenance & operating expenses plus annual debt
service [principal and interest for revenue bonds issued] plus
fund deposit requirements minus non-airline revenue [concession
& parking revenues] equals the net airline requirement. This is
the residual agreement meaning the risk of continuing to operate
the airport or make capital investment in the airport is
entirely borne by the airlines.
In addition, the AOA:
· Creates five administrative reserve funds within the AOA
· Maintenance and Operating - Equal to 25 percent
of the annual expenses
· Supplemental Repair and Replacement
· Airport System Capital Project
· Airport System Development
· Excess Revenue
· Obligates the airlines to pay AIAS revenue bonds
through rates and charges - Allocates to specific
areas depending on the project
· Establishes capital project consultation procedures
· Establishes airline lease obligations and
accommodation procedures
SENATOR LINCOLN asked what the tonnage breakdown is for
Fairbanks and Anchorage.
MR. SURA said he didn't have that data.
He continued to say:
Bond resolution is addressed on pages 12 through 15.
· Rate Covenant: Annual net revenues are at least equal
to 1.25 times aggregate annual debt service
· Additional Parity Bonds Requirements: All bond series
have equal standing. For three years after project
completion, there will be sufficient revenues to
maintain at least 1.25 times aggregate annual debt
service.
SENATOR LINCOLN asked for assurance that there would be an
annual review to ensure there would be sufficient revenue for
each of the subsequent three years.
MR. SURA said it's an annual review and when the audit is
completed at the end of the fiscal year that data is included in
the financial statements.
Page 13 gives the actual language in the bond resolution. It
says the revenues from the airport system are the sole guarantee
of the bonds. It is in the 1999 and 2000 bond resolution and
would be in the 2004 resolution as well. For each series of
bonds that is issued there is a stand-alone resolution that
mirrors previous resolutions.
SENATOR OLSON asked him to reaffirm that the state's bonding
ability would not be impacted in the event of a default.
MR. SURA said that was correct. The credit agencies refer to
these bonds as project financed. They have no affect on the
state's bond rating. He pointed out that if a state were to
default that might affect the ability of an airport to issue
revenues bonds because the underlying economic conditions of the
state would be of concern, but an airport is an enterprise fund
and it's viewed as a separate entity by investors and rating
agencies.
SENATOR OLSON asked if documentation for that language [security
resolution on page 13] was available.
MR. SURA advised it's in the prospectus for each series of bonds
that's issued.
Page 14 shows the flow of funds and it's important to note that
as revenue comes in it is deposited in the interest account
first and then into the bond retirement account.
SIDE B
6:30 pm
Page 15 highlights the interrelationship and need for alignment
between the AOA and the state's bond resolutions. The former is
always subordinate to the latter to ensure the flow of funds.
That was key when they renegotiated with the airlines. When they
went forward with issuing future debt, one of the things agreed
to in the operating agreement was a five-year capital
improvement program of $330 million. The deferred projects the
commissioner referred to were projects from that negotiated list
in the operating agreement.
SENATOR LINCOLN asked why the AOA has to say it is subordinate
to the state's bond resolution if in fact the state isn't
pledging its credit on these bonds.
MR. SURA referred to pages 11 and 14 to explain that additional
reserve funds were created within the operating agreement. The
fund requirements listed on page 11 wouldn't be funded until the
flow of funds shown on page 14 is satisfied. That is the reason
the AOA is subordinate to the bond resolution; payment of the
bonds has priority.
Page 16 shows the bond issues beginning in 1993 through 2002. Of
the original $379.8 issued, there is $368 outstanding as of June
30, 2002. The chart also shows the annual debt service for each
of the bonds as well as the rating.
SENATOR THERRIAULT asked if 1993 was the first bonding.
MR. SURA thought that was the first issue.
Page 17 is a representative schedule from conception to actually
marketing the bonds.
Page 18 was covered earlier and page 19 shows the funding
requirements for all projects in the TRP and remaining projects
in the CIP that were negotiated with the airlines. Page 20
forecasts landing fees for FY 03 through FY 10. For comparative
purposes, the amounts in the 2002 feasibility study, the
original numbers and the revised forecast are included. Page 21
has a similar calculation for the terminal rental rates.
The last five pages give comparative airport data and plans.
They looked at a cross section of airports, ones dominated by
cargo, ones that are spoke-markets and others that are hubs.
Debt service is shown, as is the number of bonds issued since
September 11. Risk assessment is addressed on page 25 and
includes scenarios some of the rating agencies ask them to
evaluate. Those include operational risk, project risk and
financial risk. The last page is findings and recommendations.
SENATOR LINCOLN asked if they had done a realistic analysis of
any or all of the risk assessments listed on page 25.
MR. SURA stated they hadn't done so, but because the forecasts
are used for financial purposes they are very conservative. He
thought that was demonstrated with the new figures that are four
years ahead of the 2002 figures. The same would be true for a
forecast prepared for the FY 04 bonds. Raters and investors are
looking for a range of where the scenarios may end up and the
analysts assign probabilities to the numbers.
6:40 pm
CHAIR COWDERY asked if it was true that the Legislature could
approve this, but if the buyers decided it wasn't prudent, they
wouldn't purchase.
MR. SURA said yes. He then advised that Dallas sold $1.46
billion in bonds two and one half weeks ago, which is the
largest single issue ever sold. In addition, it was over
subscribed 2.5 times indicating the bond market is particularly
hungry for airport revenue bonds because they're safe and stable
and are returning 4.5 percent. Another thing to consider is that
airport costs are about four or five percent of an airlines
total operating expense so what they pay in landing fees is
relatively minor compared to labor, fuel, aircraft leases and
other costs.
CHAIR COWDERY asked how the landing fees compare with other
airports.
MR. SURA replied they are comparatively low; most airports are
over $2.00. Fees also depend on whether there has been any
capital investment recently.
CHAIR COWDERY asked if airport projects ever come to an end.
MR. SURA pointed out that airports are open 24 hours a day and
are always changing. Projects are completed while others are
ongoing.
SENATOR LINCOLN commented Fairbanks is finished and has been for
some time.
SENATOR OLSON asked what happens to the projects at airports
that shut down. He said the Denver airport shut down.
MR. SURA replied Stapleton was intentionally closed and a new
one constructed.
CHAIR COWDERY commented the Kansas City airport outgrew the
space.
MR. SURA agreed and said they then built one outside of town and
it's now surrounded by commercial and residential development.
SENATOR LINCOLN said she does see the growth at the Anchorage
airport, but comments included in the March 25 report recommend
deferring construction and getting the project back within the
original budget. These comments are from the users of the
terminal and she questioned whether the concerns had been
addressed.
CHAIR COWDERY said he hasn't had one carrier say the project
shouldn't be finished. At the first hearing the discussion
centered around $120 million so there has been a scale back.
SENATOR LINCOLN said she would like to hear from the major
carriers before the bill reaches the floor.
CHAIR COWDERY repeated his statement that the bonding companies
would require assurance that the airlines were committed.
COMMISSIONER BARTON said all the carriers agree that terminal C
should be completed; there is no disagreement in that regard.
SENATOR LINCOLN asked where the disagreement lay.
COMMISSIONER BARTON replied there is disagreement regarding the
procedure for renovation of the rest of the terminal and on the
passenger facility charge that the airport will contribute to
the rate base for the next six years. Negotiations with the
airlines are ongoing, but he feels they are close to agreement.
6:47 pm
CHAIR COWDERY advised he spoke with the airlines representative
earlier in the day and all carriers were in agreement that
Concourse C must be finished.
SENATOR LINCOLN asked if there might be any circumstance under
which the State of Alaska could be held liable.
COMMISSIONER BARTON said he didn't believe so.
At ease from 6:48 pm to 6:49 pm
SENATOR OLSON asked for the AOA membership.
COMMISSIONER BARTON said he couldn't name them all, but they
were the airlines operating out of Anchorage International.
SENATOR OLSON asked if there were 121 carriers.
COMMISSIONER BARTON said he thought there were 135 operators and
proceeded to read a partial.
SENATOR OLSON respectfully pointed out the list was dated.
COMMISSIONER BARTON noted the list was from June 30 1996 and
said he would provide an updated list.
SENATOR OLSON asked who was waiting to give teleconferenced
testimony because he would like to hear from individuals that
would be affected and whose views might not have been heard.
CHAIR COWDERY said he had John Steiner on line and asked if he
had any comments.
MR. STEINER from the Department of Law advised he had no
particular comment.
COMMISSIONER BARTON announced he had an updated list and could
read it or submit it for the record.
CHAIR COWDERY asked him to submit a copy.
SENATOR LINCOLN restated her concern regarding whether the state
might be liable for the bonding in a worst-case scenario.
MR. STEINER replied he thought the commissioner was correct
that, under the bonding documents, only the revenues of the
airport are subject to the liability. However, because the bonds
are insured to protect the bondholders, they would need to
confirm that the insurance company could look only to the
revenues of the bonds and not to the state.
TOM BOUTIN with the Department of Revenue explained he was also
representing the State Bond Committee, which has issued
international airport bonds 14 times since 1968. He advised
there are different levels of state credit for the different
kinds of debt and the bonds under discussion are stand-alone
revenue bonds. Under the resolution passed by the State Bond
Committee and referred to in previous testimony, the trustee has
a right to enter the airport and take over the airport
operations on behalf of the bondholders in a worst-case
scenario. He added he couldn't imagine that actually happening,
but the state's credit wouldn't be on the line in any case.
He said the bond committee has sometimes found financial
guarantee insurance to be cost effective. You would purchase an
AAA rating from a financial guarantee insurance company
calculating you would get a better interest rate over and above
the cost of that insurance. The bondholders buy an AAA credit
and the financial guarantee company has the risk, but the state
isn't obligated whatsoever.
SENATOR OLSON asked about Mr. Sura's statement that there has
never been a default on airport bonds.
MR. BOUTIN said he was knowledgeable regarding Alaska and there
certainly hasn't been a default of Alaska international airport
revenue bonds. In fact, there hasn't ever been an event in the
state in which the resolution was called upon for the trustee to
enter and force an action.
SENATOR OLSON asked about any defeasance and whether he was
familiar with the difficulty associated with the cost overruns
and schedule difficulties with the north terminal of the
international airport in the 1980s.
MR. BOUTIN said in public finance the term defease isn't usually
related to credit circumstances. In public finance, bonds are
defeased when the issuer purchases government or AA securities
for which the interest payments and maturities are timed to be
coordinated directly with the debt service payments on the bonds
being defeased. The bonds being defeased are no longer an
outstanding credit of the issuer because AAA U.S. government
securities would be in escrow to secure those bonds.
Alaska international airport bonds have been defeased from time
to time, but not as an event of default. Usually it was an
event of advance refunding, but with tax code changes, advance
refunding has become rare.
He said he would look into the circumstance of the north
terminal because he was unfamiliar with the matter.
SENATOR OLSON thanked him and stated he was willing to wait
until the following day to finish his questions.
CHAIR COWDERY held SB 216 in committee and recessed the meeting
until 9:00 am the following morning.
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