HOUSE BILL NO. 90 "An Act relating to bonding limitations and Alaska Industrial Development and Export Authority; and providing for an effective date." TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA) introduced staff members available to answer questions. He reported that AIDEA requested changes to statutes that deal with bonding and confidentiality. The Alaska Industrial Development and Export Authority (AIDEA) mission is to provide various means of financing to promote economic growth and diversification in Alaska. It fulfills this mission by providing Alaska businesses and non-profit agencies access to long term capital at reasonable costs through two credit programs: Conduit Revenue and Loan Participation programs. The Conduit Revenue program has financed 309 projects with over $1.1 billion. The Loan Participation program has issued over $800 million in loans. House Bill 90 is part of a larger effort to become more proactive and responsive to the financial needs of Alaskans in this changing economy. 2:36:56 PM Mr. Leonard noted that HB 90 amends AIDEA statutes to allow the authority, flexibility and timing that it issues bonds to ensure the most favorable terms and interest rates possible in order to reduce the overall cost of financing for both AIDEA and Alaska's businesses using this program. House Bill 90 clarifies and assures borrowers and development project applicants that certain records and information provided to AIDEA will be kept confidential. Section 1 amends AS 44.88.095(a) to exclude refunding and Conduit Revenue bonds from the $400,000,000 maximum amount of bonds, set in 1990, AIDEA may issue during any 12-month period (AIDEA CSHB 90(L&C) Sectional Analysis, copy on file). Mr. Leonard referred to the bond terms descriptions paper (Alaska Industrial Development and Export Authority, Description of Bond Terms, copy on file). Mr. Leonard listed the four types of bonds. General Obligation Bonds that are secured by the general assets and future revenues of the Authority, Revenue Bonds that are payable out of revenues derived from the projects financed or the businesses for which the projects are financed, Conduit Revenue Bonds that are payable out of revenues derived from the projects financed or the businesses for which the projects are financed, and Refunding Bonds that are issued to retire and replace already outstanding bonds. 2:38:36 PM Representative Fairclough asked if Mr. Leonard followed up on her question regarding whether refinancing was specific to the total accumulative savings or just individual time specific savings. 2:39:10 PM Mr. Leonard responded that AIDEA is doing both. 2:39:21 PM VALORIE WALKER, DEPUTY DIRECTOR, FINANCE, AIDEA, testified via teleconference, replied that AIDEA looks at refunding savings as a net present value basis over the life of the issue, comparing the old issue with the new issue being refunded. If the savings are graded in the three to five percent range, they would proceed with the refunding. 2:40:50 PM Mr. Leonard declared this allows AIDEA to cover the issuance costs. With the refunding bonds, the total amount of bonds is self limiting due to the fact that the bonds are used only to replace existing bond debt. The fourth type of bond, the Conduit Revenue Bond, is used to finance businesses and non-profits where AIDEA acts as a conduit or agent for the issuance of these taxable bonds. Conduit Revenue bonds are payable solely by the project developer primarily from the revenues generated from the project. There is no financial obligation for the bond debt; therefore they are not at risk. Conduit Revenue bonds are one of the main means that non-profits and some businesses can get tax exempt status for their bonds. 2:42:18 PM Mr. Leonard added that Refunding and Conduit Revenue bonds help promote AIDEA's economic development mission without substantially increasing the amount of outstanding debt. The enactment of this amendment would ensure that the 12-month bond limit would not limit the effectiveness of the Conduit and Refunding bond programs or prevent AIDEA from issuing debt that would provide Alaska businesses and non-profit organizations with more favorable terms and lower capital costs. 2:43:27 PM Mr. Leonard remarked that Section 2 is for AIDEA to regain the bonding authority before the sunset on July 1, 2007. Before that time, the Authority could issue bonds for $10 million and under; anything over $10 million would have to come back the legislature. Another part of Section 2 attempts to change the wording that allows the refunding bonds to include the issuance costs to be covered by the proceeds of the refunding bonds. Co-Chair Hawker responded that this just clarifies what is standard operating procedure in the refunding world. Mr. Leonard agreed. Mr. Leonard proceeded with Section 3, dealing with confidentiality. He explained concerns from participants of the loan programs and development program on the level of confidentiality. Under Section 3 and Section 4 it clarifies what would be kept confidential and the process of how it would be kept confidential. There would also be a definition inserted of what is meant by trade secrets. 2:46:24 PM Co-Chair Hawker referred to Section 4 that makes it clear the Executive Director has authority to determine confidentiality of specific records and information. Mr. Leonard agreed. Co-Chair Hawker remarked that the cost of refunding makes sense. He asked for clarification if AIDEA could issue refunding and conduit bonds at a limit of $10 million each. Mr. Leonard responded that the $400 million limit is for all bonds issued by AIDEA. Under the sunset section AIDEA was allowed to issue conduit revenue and refunding bonds at any limit, except for the limit of $400 million. 2:48:40 PM BRIAN BJORKQUIST, SENIOR ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW testified via teleconference, that under the current statute the $10 million limitation applies to bonds issued to finance development projects. The Alaska Industrial Development and Export Authority has had authority to issue refunding bonds and conduit bonds in any amount; there is no dollar amount limitation, except for the aggregate under Section 1. Co-Chair Hawker reiterated that the change would be to eliminate legislative approval for any of the Refunding and Conduit bonds; the Alaska Industrial Development and Export Authority would be allowed to issue any amount during any given year. Mr. Bjorkquist agreed. Co-Chair Hawker questioned why this was necessary. Mr. Leonard responded the belief that in today's economy timing differences could run up against this limit. He reported that AIDEA has not run up to that limit at this time, but there have been management concerns that the limit would be reached. He noted that with the bond market as it is today, there may be more refinancing. 2:52:23 PM Representative Austerman explained that when the Conduit and Revenue bonds push the $400 million limit it becomes a problem. The Conduit and Refunding bonds should not necessarily be impacted because there is no cost factor downside to the Conduit and Refunding bonds. 2:53:15 PM Mr. Leonard responded they would not affect financing capability to finance General Obligation or Conduit Revenue bonds. Representative Austerman emphasized that it would not be a problem unless pushing the $400 million. Mr. Leonard said those two bonds do not affect the capacity to issue bonds. The Alaska Industrial Development and Export Authority is concerned that if they issued about $200-$300 Conduit or Refunding bonds, then it would affect the capacity to issue General Obligation or Revenue bonds for projects. 2:54:16 PM Representative Fairclough interjected that there is an administrative fee that is taken on the Conduit and other bonds that provide a revenue stream with a financial impact. She wondered why the legislature would allow unlimited authority of an agency to pass this credit. She expressed her concern that someone could overextend themselves and the state would be left on the hook. Mr. Bjorkquist replied that neither the state nor AIDEA would be financially liable for Conduit bonds. Co-Chair Hawker expressed his concern for the extension of credit to the Conduit Revenue bonds. He asked when the $400 million was established. 2:57:39 PM Mr. Leonard replied in 1990. Co-Chair Hawker questioned if this proposal had been discussed with the state's debt manager. Mr. Leonard replied that it had not been discussed with the state's debt manager. Co-Chair Hawker strongly suggested that be done before the next meeting. 2:58:35 PM Co-Chair Hawker opened public testimony on HB 90. As there was none, public testimony was closed. Co-Chair Hawker expressed that the committee planned to hold the bill today. 2:59:26 PM Representative Joule disclosed his desire to enter an amendment for discussion, although it would not be introduced today. His amendment would take the sunset date from 2009 to 2012. This would relate to the valuation and the Red Dog property. The borough and the Red Dog Mine have a payment in lieu of taxes agreement as opposed to the borough actually taxing. The current agreement is going to last until 2011. The borough and operators of the mine could have their negotiations on what the tax rate or payment would be. Without this, the borough would have no other choice in these low commodity rate times to go and open an agreement that is still a few years out. Co-Chair Hawker noted that the governor's office is also evaluating the same points brought forth by Representative Joule. 3:01:48 PM Representative Kelly commented that AIDEA has performed a very valuable service and believed there has never been a default in Conduit financing. Mr. Leonard did not believe so. Representative Kelly asked for verification before the next meeting. He suggested a compromise; the $400 million limit could be raised to keep Conduit and Revenue bonds under this limit. Co-Chair Hawker agreed he was open to that conversation. He added that even under the existing AIDEA parameters, it has come close to hitting these limits, but never actually been blocked by the existing limits. Mr. Leonard responded that was correct; they were only looking into the future. Co-Chair Hawker responded that if refinancing was taken out of the overall cap, but left some of the conduit for new debt under the existing cap, this could create more margin. 3:04:14 PM HB 90 was HEARD and HELD in Committee for further consideration.