Legislature(1995 - 1996)
04/16/1996 03:55 PM Senate TRA
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SENATE TRANSPORTATION COMMITTEE
April 16, 1996
3:55 p.m.
MEMBERS PRESENT
Senator Steve Rieger, Chairman
Senator Robin Taylor, Vice Chair
Senator Lyda Green
MEMBERS ABSENT
Senator Al Adams
Senator Georgianna Lincoln
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 526(FIN) am
"An Act relating to the financing authority, programs, operations,
and projects of the Alaska Industrial Development and Export
Authority; providing an exemption from the procurement code for
certain projects of the authority; and providing for an effective
date."
PREVIOUS SENATE ACTION
HB 526 - No previous action to record.
WITNESS REGISTER
Representative Pete Kott
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Prime Sponsor of HB 526
Randy Simmons
Alaska Industrial Development & Export Authority
480 W. Tudor Road
Anchorage, AK 99503-6690
POSITION STATEMENT: Offered information on CSHB 526(FIN) am
Keith Laufer, Assistant Attorney General
Govermental Affairs Section
Department of Law
1031 W. 4th Ave., Suite 200
Anchorage, AK 99501-1994
POSITION STATEMENT: Offered information on CSHB 526(FIN) am
ACTION NARRATIVE
TAPE 96-14, SIDE A
Number 001
CSHB 526(FIN) am AIDEA OPERATIONS/PROJECTS/LOANS
CHAIRMAN RIEGER called the Senate Transportation Committee meeting
to order at 3:55 p.m., and then opened the hearing on CSHB 526(FIN)
am.
REPRESENTATIVE PETE KOTT, prime sponsor of HB 526, said the
legislation deals with the Alaska Industrial Development & Export
Authority (AIDEA), which was created to promote employment in
Alaska through a variety of tools. Changes in the economic, legal
and financial conditions have made it desirable to examine and
reopen a number of areas in AIDEA to make AIDEA more user friendly
to those that they service. He said he could go through the
sections of the bill, but suggested that he defer to the experts
from AIDEA and the Department of Law to explain the bill and
respond to questions.
Number 060
RANDY SIMMONS, representing the Alaska Industrial Development &
Export Authority, came before the committee. He explained there
are four major areas of the bill: (1) restoring the bonding
authorization; (2) changes to the Business Assistance Program; (3)
authorization for the Red Dog Mine project expansion and the
purchase of the Snettisham Hydroelectric Project; and (4) repealing
authorization for two projects that were financed through other
means or that are not going to be built in the specific area for
which it was authorized.
Under the bonding authorization, the bill restores bonding
authorization that AIDEA had up until June 30, 1995. Under
previous language AIDEA could bond projects up to $10,000,000 in
the Development Finance Program without specific legislative
authorization; however, they had to come before the legislature to
get authorization for projects over that amount. It also allows
AIDEA to do bonds that are tied to their Loan Participation
Program. The Fort Knox Mine Project in Fairbanks came up after the
bonding authorization expired in 1995, and it is waiting for final
financing through AIDEA at this time.
Section 9 of the bill makes changes to the Business Assistance
Program. Under that program, AIDEA can guarantee up to 80 percent
of a loan up to $1 million. The program has been on the books for
a number of years, but it hasn't been used extensively because the
federal government has a Small Business Assistance program that has
been used a lot. However, the SBA program has been changed in a
couple of ways that is not making it quite as attractive for small
businesses. To make the Business Assistance Program more
attractive the section provides a guarantee of interest if a loan
were to go into default. The SBA program and programs like it
normally have a guarantee period of 90 days, which gives the bank
time to liquidate the loan. The section also provides that as long
as the loan that AIDEA participates in benefits an Alaskan
business, it would qualify.
Sections 18 and 19 of the bill provide the project authorizations.
The first project is Red Dog II and the section provides
authorization to expend up to $85 million for the expansion of the
facilities that AIDEA owns at this time at Red Dog. Cominco will
probably put another $100 million in their portion of the
facilities. It is anticipated that the expansion of the facilities
will provide up to 105 new jobs and will also increase the payment
in lieu of taxes. It will make Cominco not only the largest zinc
mine, but this area of Alaska will be the largest zinc producing
area in the world, if the expansion is successful.
The second project AIDEA is asking authorization for is the
Snettisham Hydroelectric Project located in Juneau. That project,
along with the Aklutna project in Anchorage, is owned by the
Federal Alaska Power Administration. AIDEA is asking for a $100
million authorization: AIDEA estimates the actual purchase price
will be about $78 million; approximately $12 million will be set
aside for debt service reserves, as well as underwater cable
purchase; and there is approximately $10 million in the
authorization that allows some float if the interest rate changes.
Purchase of the project will provide rate stability for the rate
payers in Juneau.
Section 17 will repeal an authorization for $40 million for
aircraft refueling facilities at Anchorage International Airport.
Those facilities are being built and financed by a consortium of
the airlines. The section will also repeal a $50 million
authorization for the Midrex facility located in Point McKenzie.
That facility will not be built at Point McKenzie, and, if it is
built, it will be at another part of the state.
Concluding his overview of the legislation, MR. SIMMONS stated he
and Mr. Laufer would be happy to respond to questions from the
committee.
Number 266
CHAIRMAN RIEGER referred to Section 1 and the words "related to"
and he asked how broad the exemption "related to" is when it refers
to AIDEA. KEITH LAUFER of the Department of Law responded that it
would refer to all contracts related to the Red Dog Project that
AIDEA would enter into. He said the purpose of that is to allow
AIDEA to contract directly with Cominco as their construction
manager. AIDEA has adopted a procurement plan for the Red Dog
Project, which is substantially the same as the Procurement Code,
but it allows for direct contract with Cominco in construction
related activities.
CHAIRMAN RIEGER expressed his concern that the language was too
broad, and he asked if tighter language could be provided. MR.
LAUFER explained that the language is drafted that way to avoid the
prohibition against local and special legislation. As written,
AIDEA only has one integrated transportation and port facility
project, which is the Red Dog Project, so the purpose of drafting
that way was to avoid those constitutional problems.
Number 322
CHAIRMAN RIEGER referred to Section 2, the Fort Knox provision, and
inquired if this was a general obligation bond of AIDEA or a pass-
through bond. RANDY SIMMONS answered that Fort Knox will be
conduit financing pass-through. KEITH LAUFER added that elsewhere
in the AIDEA statutes, AIDEA is given general bonding authority,
and this provision is a limitation on that bonding authority.
CHAIRMAN RIEGER asked if with the new language can AIDEA not only
do pass-through bonds but also general obligation bonds up to $10
million without legislative authorization. RANDY SIMMONS responded
that was correct.
CHAIRMAN RIEGER asked if AIDEA will own the Fort Knox project.
RANDY SIMMONS replied it is a project where AIDEA will just do the
revenue or conduit financing, and AIDEA will not be obligated under
those bonds.
Number 404
CHAIRMAN RIEGER referred to Section 5 and commented that the
statutes are pretty clear on setting interest rates when there is
underlying bond financing; however he wanted to know what the
interest rate is on a direct loan out of the assets of the
authority. RANDY SIMMONS answered that basically, AIDEA sets its
rates whether its under bonds or through their direct assets, and
they get those rates every week based on either the long or short-
term treasury bonds.
Number 417
SENATOR TAYLOR asked if in Section 6 it was taking the board out of
the annual review function and putting the executive director in
charge of that function. KEITH LAUFER explained the problem in the
past has been convening a board meeting in time to submit the
report for the legislature's review, particularly in years where
the administration has changed. This will allow the executive
director to submit the report without the board formally taking it
up. RANDY SIMMONS added that the board chairman and other members
of the board review the annual report before it is submitted.
Number 453
CHAIRMAN RIEGER asked if Section 9 relates to the guarantee of
interest if a loan goes into default. RANDY SIMMONS acknowledged
that the section permits AIDEA to guarantee interest on the
guarantee portion of loans as set forth in regulation. CHAIRMAN
RIEGER then inquired as to the fee AIDEA is charging on loan
guarantees. RANDY SIMMONS answered that it is 1 percent. The 90-
day period will mirror the SBA program, but they will have the
flexibility to either reduce on increase that fee if circumstances
change.
CHAIRMAN RIEGER directed attention to paragraph (1) in Section 9
and noted there is no longer an "up to" clause. He asked if this
means that when AIDEA does a guarantee it will be 80 percent.
RANDY SIMMONS responded that it should be clarified in the
paragraph that it is up to 80 percent.
Number 520
CHAIRMAN RIEGER referred to Section 10 and asked if there is a
limit on the size of any individual guarantee. KEITH LAUFER
acknowledged there is. The authority is only permitted to
guarantee up to 80 percent of a loan of $1 million, and it may not
guarantee to an individual borrower cumulatively more than $1
million.
Number 550
CHAIRMAN RIEGER directed attention to Section 12, lines 23 - 25 on
page 5 and said it appears to be a fairly significant expansion of
the ability to acquire real or personal property. KEITH LAUFER
explained that another section of the bill eliminates the Business
Assistance Fund. Previously the authority had conducted the
business on loan guarantees in a separate segregated fund that was
part of its revolving fund. The only change intended to be made
was to remove the reference to the fund and say that as long as the
authority was protecting its interest they are only within the loan
guarantee program now. CHAIRMAN RIEGER suggested tightening that
language to say protect the interest in a loan or a loan guarantee.
KEITH LAUFER agreed to the change.
Number 566
Responding to a question from Chairman Rieger on Section 13, RANDY
SIMMONS said it gives AIDEA the ability to do projects such as
Snettisham.
TAPE 96-14, SIDE B
Number 001
CHAIRMAN RIEGER referred to Section 16 and suggested clarifying in
the definition of "prime rate" that it is a domestic money center
prime rate.
CHAIRMAN RIEGER directed attention to the first repealer in Section
16 (AS 44.88.500(b)). KEITH LAUFER explained that was a reference
back to the Business Assistance Fund. When the program was
operated within a Business Assistance Fund, the recourse of the
beneficiary of the guarantee was only to the assets in the fund.
CHAIRMAN RIEGER said as he reads 44.88.500(b), it had nothing to do
with that fund, and this would now broaden the amount of assets
AIDEA pledged to every individual issue. He suggested checking to
see if repealing subsection (b) might be a problem.
Number 050
CHAIRMAN RIEGER said there has been kind of a rolling sunset and
the last extension was in 1993 going to 1996, and as he reads the
next section it would repeal the sunset in its entirety. He
suggested the committee might want to keep a sunset out, because
if the committee doesn't do it, Senate Finance will.
Number 065
CHAIRMAN RIEGER directed attention to Section 18 and asked if AIDEA
has a deal with Cominco as to what they will pay back for the
amount that they financed. RANDY SIMMONS responded that AIDEA has
just started negotiating with Cominco to set out what the
perimeters of the Red Dog II financing will be, so there has not
been anything, at this point, agreed to as to what the return will
be. CHAIRMAN RIEGER then asked what AIDEA anticipates the amount
to be financed with bonds and the amount to be financed out of
assets of the authority. RANDY SIMMONS replied that at this point
in time, they anticipate the full amount to be financed out of
bonds.
Number 080
Referring to Section 19 and the Snettisham project, CHAIRMAN RIEGER
asked the amount AIDEA anticipates to be financed with bonds and
the amount to be financed out of assets of the authority for that
project. RANDY SIMMONS replied that Snettisham is a little bit
different than the Red Dog project. It will be financed totally
out of bonds and they will be the moral obligation of the state of
Alaska and not AIDEA. By using state moral obligation with the
type of project that it is, the financing will be cheaper. Also,
AIDEA is attempting to go out right now to do an $85 million
financing on the Healy clean coal project, which will be bonding,
and if they did that $85 million plus this $100 million, they would
have close to 62 percent of their outstanding bonds in two large
energy projects. That would probably give some concern with the
rating agencies because of the size of the concentration. Normally
an entity the size of AIDEA would not do projects such as that.
Number 125
Responding to questions from Senator Taylor on the Snettisham
project, RANDY SIMMONS explained AIDEA is not 100 percent committed
at this point in time because they still have steps they have to go
through; they have not done all of their financial feasibility, nor
have they had the risk assessment done on the project. Also, they
are working with AEL&P right now, and there are going to be
provisions in this take or pay contract that basically will commit
AEL&P to the maintenance of the project. The way it is set up,
AIDEA would be the owner and AEL&P would be the operator. The
financing that AIDEA would charge to pay for the bonds would go
back into the authority, which the state of Alaska basically owns.
SENATOR TAYLOR commented that it seems to him that there is a
totally different treatment being applied on the Snettisham project
from the treatment that was applied on the Four Dam Pool. RANDY
SIMMONS agreed that it is different. He pointed out that the
Alaska Energy Authority (AEA) is no longer in the business as it
was when back then, and AIDEA is looking at this as a development
finance project under this program, so it is a different type of
structure.
Following further discussion on the Snettisham and Red Dog
projects, CHAIRMAN RIEGER said it was his intent to have a
committee substitute drafted incorporating the changes that had
been discussed during the meeting and that it would be back before
the committee for its consideration.
There being no further business to come before the committee, the
meeting was adjourned at 5:05 p.m.
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