HOUSE BILL NO. 275 An Act authorizing financing for certain public transportation projects; giving notice of and approving the entry into, and the issuance of revenue obligations that provide participation in, lease-financing agreements for those transportation projects; and providing for an effective date. 3:53:19 PM *Co-Chair Chenault MOVED to ADOPT work draft #24-LS0902\G, Utermohle, 4/26/05, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. PETE ECKLUND, STAFF, REPRESENTATIVE KEVIN MEYER, explained the changes. The original version of the bill allocated $115 million dollars for statewide projects. Version G allocates $183 million dollars for projects. He referenced the handout: "Grant Anticipation Revenue Vehicles (GARVEE) Project List". (Copy on File). He pointed out that many of the projects relate to the gas pipeline. The bond package could be paid back over 16 years, totaling $16.1 million dollars per year, for a total of $257 million dollars. 3:55:56 PM Co-Chair Meyer related the bill's history and concern with using the bonds. He observed that the Department of Transportation & Public Facilities and the Alaska General Contractors would rather use a different funding source. 3:57:38 PM JOHN MACKINNON, DEPUTY DIRECTOR, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, testified that GARVEE bonds "do not grow the program". He pointed out that federal funding for the past 18 months has been a roller coaster ride and the Department is anxiously awaiting reauthorization. GARVEE's are a great mechanism when there is a growing program. Paying out interest earnings shrinks the program, ending up with a bulge in construction activity. He maintained that using the GARVEE bonds concerns the Department. Co-Chair Meyer pointed out that some of the proposed roads were ones supported by the Governor, noting that passage of the bill would allow acceleration for those projects. Mr. MacKinnon agreed. 3:59:58 PM Representative Hawker recognized the reticence of using the proposed vehicle. He asked if the bill were passed, would that be a single placement or would it be placed into components. He asked the schedule of the bond placements. Mr. MacKinnon did not know, indicating it would be the call of the Governor. 4:01:24 PM Mr. Ecklund countered in support of the GARVEE's pointing out that in the last two years, heavy construction inflation has been growing at the rate of 50% per year. By moving some projects up and doing them now, there could be an inflationary cost savings. The interest earnings on the bonds could be used to offset the State match. 4:02:19 PM Co-Chair Chenault asked what would happen with left over money from the allocations. Mr. MacKinnon replied that rarely is there money left over on a project and the bill provides the ability to allocate for other projects. Co-Chair Chenault commented on "old" money still waiting for the General Obligation (GO) allocation. Mr. MacKinnon understood that the policy was for those monies to stay on the project list. That money could be reallocated. If a GARVEE package results, the Department will have to use "discipline". If projects grow and exceed the available number, it is important that the Department remains within budget, otherwise it could drain other projects. 4:04:49 PM Representative Holm was concerned that projects would be built with no maintenance funding placed in. He requested an analysis for the projects and asked to what extent the State studies programs. Mr. MacKinnon acknowledged that the Department is aware of the increased maintenance costs, however, those are not considerations when the project is being built. Representative Holm reiterated his concern that when projects are placed on the STIP, they come without a maintenance factor built in. He maintained that it is important to look at planning and if there would be a significant impact. 4:07:41 PM Mr. MacKinnon pointed out that it would be good to have information regarding the increase in annual maintenance costs. Representative Holm agreed. Representative Hawker asked if there could be a penalty for early financing or payoff if another preferred mechanism was chosen instead of the GARVEE. Mr. McKinnon did not know but indicated that the State could substitute the federal screen for other sources. 4:09:40 PM DICK CATTANACH, EXECUTIVE DIRECTOR, ASSOCIATED GENERAL CONTRACTORS OF ALASKA, ANCHORAGE, clarified that his board concurred with the Department's position against using the GARVEE bonds. The use of the bonds would not add to the highway program but rather would move projects from the future to the present. The bonds will not add project money, with the exception that building now might be cheaper than building in four years because of inflation. Issuing GARVEE bonds means paying interest and that interest must come from the $6 billion dollar allocation. The interest costs might offset the inflation and the State will end up with a program no bigger. He emphasized that using the GARVEE bonds creates an artificial period of time. 4:12:07 PM Mr. Cattanach thought that the $200 billion dollar number was exorbitant. The projects would total $500 million dollars for two years and contractors would ramp up for that. Paying off the bonds, it would be decreased. With the bonds issued last year and the current ones, would result in a reduced program of $25-$30 million dollars. Instead of $4 million future dollars, the end result will be $375 million dollars for the next 14 years. He stressed that if using GARVEE bonds, the projects must be selected carefully. He reiterated his opposition to using the bonds. 4:14:37 PM Co-Chair Meyer commented that finding roads for the gas pipeline is important. He pointed out that some of those roads are on that list and there is a need to find geographical balance. 4:15:16 PM Mr. Cattenaugh argued against using the GARVEE bonds. Co- Chair Meyer acknowledged that his first choice was to use the surplus Amerada Hess general fund money. 4:16:05 PM Representative Hawker asked how Mr. Cattenaugh would counsel the Committee for road maintenance funding for sustainable planning. Mr. Cattenaugh responded that the Statewide Transportation Improvement Projects (STIP) process works, acknowledged, it is flawed. The STIP is currently the best process that the State has. He did not know how to otherwise respond to Representative Hawker, reiterating concern that GARVEE bonds are not a good option; the projects would be on top of a highway program already costing $400 million dollars. 4:18:16 PM Representative Hawker commented that he really did not understand the STIP process and asked what would happen if the State did have an alternative funding source and if the STIP money was lost or available for rescheduling. Mr. Cattenaugh believed it would be available as it was authorized for Alaska. 4:19:52 PM TOM BOUTIN, (TESTIFIED VIA TELECONFERENCE), DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE, ANCHORAGE, responded to Representative Hawker's query, a question for the Department of Transportation & Public Facilities. He noted that in 2003, the State did issue GARVEE bonds. He understood that for each GARVEE qualified project, the State goes to the federal government to obtain an okay for that project. Therefore, a project that qualifies for GARVEE, reduces what otherwise would be federal receipts. If a project were funded through some alternative funding, the State would not be giving up federal money. 4:22:12 PM Mr. MacKinnon agreed and that it could free up that much money. Representative Hawker was hopeful to find an alternative mechanism to the GARVEE process that would not compromise funding down stream. 4:23:15 PM Mr. Boutin added that typically the bonds could be issued so that there could be an early call provision. With the call premium, there would be an issuance cost and the bond proceeds would not be invested with high rates on the bonds. There would be costs in issuing that debt and not spending the money. Using the GARVEE bonds, there will be a credit rating concern. 4:24:24 PM Representative Holm asked if the money would be lost if the projects were not completed and wondered how many of the projects would be "time trapped" under the STIP process. Mr. MacKinnon did not know. He pointed out that the list provided by Co-Chair Meyer's staff included a number of those projects. Representative Holm commented on the problems associated with the STIP process in those areas of the State that are adversely affected by projects not funded. He was concerned with supporting the GARVEE bonding. 4:26:52 PM Representative Kelly requested clarification if the STIP list would use GARVEE bond funding. Mr. MacKinnon said there would be a $100 million dollars total in that list. 4:28:28 PM Representative Weyhrauch noted in his area, there is a backlog of projects and continues to be a stagnant decline. He thought the State should foster more private development. He applauded the Chairman for "looking for every dime he can", reiterating that his area is "hurting". There is high unemployment with access needs for resources and roads. Representative Weyhrauch referenced the list, requesting it to be amended to include a road extension on Glacier Highway. He emphasized that SE Alaska supports the gas pipeline. He acknowledged that S.E. Alaska is a different world and urged that member's support addressing the needs in S.E. Alaska, too. Mr. Cattenaugh stated that the general contractors are not opposed to any projects; however, warned about moving the proposed dollars forward. He warned that the State would not gain anything that way. The Alaska General Contractors (AGC) will support another source of funding. Alaska is the only State in the nation that does not have a State highway program. In most states that program equals or exceeds the amount received by the federal government. There are over $10 billion dollars worth of needed projects. He encouraged the Legislature re-think outside federal highway dollars. 4:32:52 PM Co-Chair Meyer indicated that he would like to find another source of money for these roads; however, it is not available. He agreed that there are other sources but to date, they have not been explored. In order to address the priority roads, GARVEE bonds are the only thing available. Representative Weyhrauch maintained the real need is for fiscal planning. Representative Hawker interjected that last year, if the House had been successful with the Senate in adopting the Percent of Market Value (POMV), a constitutional spending limit, and HB 298, then the State would be enjoying the beginning of fiscal planning. 4:35:04 PM Representative Weyhrauch MOVED to AMEND on Page 3, Line 3, inserting, "Glacier Highway road extension - $10 million dollars - Section (23)". Co-Chair Meyer asked if that was on the Department of Transportation & Public Facilities' list. Mr. MacKinnon replied that project could fit into the list. There being NO OBJECTION, it was added. Representative Foster MOVED to report CSHB 275 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 275 (FIN) was reported out of Committee with a "no recommendation" and with a new fiscal note by the Department of Revenue. 4:38:12 PM