CS FOR SENATE BILL NO. 140(FIN) "An Act creating the Arctic infrastructure development program and fund in the Alaska Industrial Development and Export Authority; and relating to dividends from the Alaska Industrial Development and Export Authority." 3:04:54 PM Co-Chair Stoltze noted the intent to hear an explanation of the bill, brief questions, and public testimony. JESSEE LOGAN, STAFF, SENATOR LESIL MCGUIRE, addressed the legislation. The bill would create an Arctic Infrastructure Development Fund within the Alaska Industrial Development and Export Authority (AIDEA) and addressed one of the principle elements in the Alaska Arctic Policy Commission's (AAPC) legislative package. He detailed that the AAPC had been created to prepare the Arctic policy and implementation plan for the state for the legislature's consideration. The bill would attract private investment to pair with public investment in Alaska's infrastructure in the Arctic. Although AIDEA currently had the authority to invest in many of the areas, it had no specific programs directed to attract private investment. There were specific limitations to the package financing. He asked for the committee's preference on how to proceed. Co-Chair Stoltze asked for a brief description of the goals and aspirations of the bill. Mr. Logan addressed the sectional analysis. Sections 1 through 8 were boiler plate and put the Arctic Infrastructure Development Fund in line with other funds within AIDEA (e.g. the revolving fund and the Sustainable Energy Transmission and Supply Development Fund (SETS)). Additionally, the sections described net income, ways to generate incentive packages within the funds, and what the funds consist of. He spoke to the limitations on financing. For land-based infrastructure AIDEA would be authorized to give loans for one-third of the capital cost or loan guarantees up to $20 million. There was a project life of up to 40 years; AIDEA was also authorized to provide securities for bond guarantees. Page 7, lines 9 through 15 included a fisheries provision, which was limited to loan guarantees only (no direct loans) because the Alaska banks were currently very active in the sector; the sponsor did not want to create undo competition. The loan guarantees had a floor of $7 million to ensure that it did not conflict or create competition with other state or federal programs. Additionally, the loan guarantee could not exceed more than one-third of the project's capital costs. The eligibility for the loan guarantees would be the purchase or repair of vessels used in federally managed fisheries or the purchase of quota shares or individual quota shares in federally managed Arctic fisheries. Co-Chair Stoltze asked for a description of the fisheries in the Arctic. Mr. Logan replied that the fisheries were primarily cod and pollock fisheries. The bill looked primarily at Bering Sea fisheries that included mostly large fisher/processor trolls. He relayed that most of the fishing entities were located outside of Alaska. He explained that because AIDEA was forbidden to operate outside of Alaska, any fishing entity taking advantage of the financing opportunity would be required to relocate to Alaska. The purpose of the provision was to repatriate some of the quotas and vessels to the state. Co-Chair Stoltze asked how large the boats were. Mr. Logan did not know. 3:09:30 PM AT EASE 3:09:41 PM RECONVENED Mr. Logan replied that the fund did not specifically choose winners or losers or look for specific projects; it would wait for private entities to seek out the funding. He did not know who would be seeking the funds. Co-Chair Stoltze wondered about the vessel size and asked if they would be trawlers or draggers. Mr. Logan believed the vessels would be trawlers and processors. He relayed that Sarah Lunkin with PT Capital was available to answer detailed fishery provision questions. Co-Chair Stoltze asked for verification that PT Capital was a private entity. Mr. Logan replied in the affirmative. Representative Edgmon took exception to use of the word Arctic because technically it was the Bering Sea. He noted that the federal definition of the Arctic extended down into the upper Bering Sea. He asserted that there were currently no fisheries in the Arctic and may not be for the next 50 years. 3:11:03 PM Representative Costello asked for verification that outside companies would be able to benefit from the bill's fisheries provision. Mr. Logan replied in the affirmative. He added that the asset taking advantage of the funds or loaned against would be required to remain in Alaska. Representative Costello asked if the asset could also be repatriated. Mr. Logan answered in the affirmative. Representative Costello noted that geographically Alaska was an Arctic nation. However, the infrastructure fund would only benefit projects in one region of the state. She wondered why the fund should not apply to the entire state. Mr. Logan pointed to page 8, lines 4 through 7 that defined the state's geographical boundary of the Arctic. He pointed to a map included in members' packets that had been taken from the federal Arctic Region Policy Act of 1990 (copy on file). The map included all areas north of the Arctic Circle to the north and west of the Yukon boundary; it also included the Bering Sea. He referred to the definition of Arctic development on page 7 of the bill, which included the construction, improvement, rehabilitation, or expansion of a facility in the Arctic to aid in development or meet emergency response or anywhere in the state if the construction, improvement, rehabilitation, or expansion supported the further development of a facility in the Arctic. Representative Costello asked for the location in the bill. Mr. Logan pointed to page 8, lines 8 through 15 that included the Arctic infrastructure development definition. In response to Representative Edgmon's comment, he agreed that the bill pertained mostly to the Bering Sea; however, because the bill used the definition of the Arctic it also used the language "federal fisheries in the Arctic." He agreed that there were no fisheries located north of the Arctic Circle; there was a moratorium on any fisheries in the location for the foreseeable future. Representative Costello surmised that there would be a hurdle that would need to be overcome in lines 13 through 15. She wondered if it would be a substantial hurdle or one that could easily be overcome. Mr. Logan answered that it would depend on the individual project. The purpose of the bill was to create incentives for infrastructure in the state's least developed areas. He elaborated that if development in other areas would further the development in the state's least developed areas (i.e. the Arctic) they would be eligible. He provided the deep- water draft port in the Arctic as an example. The Army Corps of Engineers had identified Port Clarence as a likely target. He expounded that for the project to be built over the course of several years, staging grounds in other ports would be necessary due to the limited amount of shipping available for the area. Other ports may include Dutch Harbor, Seward, or Ketchikan. He stated that if storage capacity was increased in the areas to provide for staging they would be eligible for the funds. Representative Costello asked how the dividend aspect worked in the bill. Mr. Logan referred to page 2, lines 14 through 19. The dividends were the same as those set up from the revolving and SETS funds. He explained that between 25 and 50 percent of money the fund earned through loan proceeds would be returned to the general fund annually. For example, in the current year AIDEA's dividends provided approximately $20.5 million to the general fund. 3:15:30 PM Co-Chair Stoltze asked if the SETS fund was a model for the bill's fund. Mr. Logan answered in the affirmative. Co-Chair Stoltze wondered if the fund would be drained in two years. Mr. Logan replied that the bill did not seek capitalization at present; therefore, there was nothing to drain. Co-Chair Austerman referenced the building of ports. He stated that fisheries was only a portion of the bill. He spoke to the original intent of the bill to develop areas that were not developed in the Arctic. Representative Wilson asked for verification that one of the projects would not qualify under AIDEA's current structure. Mr. Logan replied that AIDEA could invest in infrastructure in most of the areas contained in the bill; however, there was no existing provision to specifically attract outside investment. The loan limitations in the bill were a signal to outside investors that the state would help provide capital at a slightly reduced rate if investment was brought to Alaska. Representative Wilson wondered how the commission was connected and if AIDEA would look for private investors. Mr. Logan replied that the commission was not connected to AIDEA in any way. He assumed AIDEA could market the fund if it chose to do so, but that was not the sponsor's intention. The intention was to provide AIDEA with another tool and to allow companies to submit proposals. Representative Wilson thought most of the items in the bill (with the exception of fisheries provisions) could currently occur through AIDEA. She wondered about the purpose of the bill. She remarked that it made sense for AIDEA to look for businesses to bring back to Alaska. Mr. Logan could not speak to AIDEA's marketing ability. He explained that the bill created an incentive. Currently, AIDEA's funds were not designed to be limited to certain portions of the capital investment or the overall costs (with the exception of the SETS fund). Without legislative approval AIDEA could not issue a loan for more than one- third of the capital cost; however, the loan for one-third of the capital cost could be significantly below market value, which would be a trigger to investors. He did not know whether AIDEA would actively seek the investors. 3:19:43 PM Representative Costello remarked on Mr. Logan's testimony that there was no connection between AIDEA and the Arctic Policy Commission. She wondered whether the commissioner of the Department of Commerce, Community and Economic Development (DCCED) sat on both boards. Mr. Logan replied that AIDEA had its own board; in statute the participants were referred to as members, but in practice it was a board of directors. Representative Costello asked whether the commissioner of DCCED sat on the board. Mr. Logan believed so. Co-Chair Stoltze replied in the affirmative. 3:20:52 PM RON LONG, MANAGER, CITY OF SEWARD (via teleconference), spoke in support of the legislation. He highlighted his top five reasons for supporting the bill. First, the legislation did not ask for capitalization and used AIDEA's authority to guarantee loans and transfer between funds. He stated that the Alaska Arctic Policy Commission identified that needs and opportunities in the Arctic would generate billions in private capital that would go to the region. Second, the bill would allow AIDEA to give Alaska businesses better-than-market rates to move the money through the state's resources (e.g. oil and gas, response, search and rescue, tourism, fisheries, and economic sectors). He believed the definition of Arctic infrastructure recognized that ports outside the geographic arctic would play a critical logistics and support role in developing the Arctic. Third, the bill made Alaskan ports more competitive than outside ports; it would take several Alaska ports to get everything accomplished. Fourth, the fisheries component created an economic reason for the 90 percent of the federally managed Bering Sea fisheries currently monetized out-of-state to home port in Alaska, adding to the 10 percent currently allocated to the CDQ [Community Development Quota] programs. Fifth, he believed the federal government had done little to advance Alaska's goals in the Arctic; however, the bill would enable Alaska to make the U.S. a participant rather than an observer. Co-Chair Stoltze referred to a resolution on by-catch. He spoke to concern about bringing in by-catch with a conflicting goal of bringing more by-catch in for subsidizing. Mr. Long replied that the bill did not add a new quota to fully allocated fisheries. He surmised that the bill may change some of the quota ownership from non- Alaskans to Alaskans. Co-Chair Stoltze asked if it was okay for Alaskans to by- catch Chinooks. Mr. Long answered in the negative. 3:23:24 PM SARAH LUNKIN, CEO, PT PUBLIC POLICY, LLC, shared information about the company. She explained that the company was the only private equity firm headquartered in Alaska that was focused exclusively on deploying capital in the Arctic. The company expected to deploy approximately 80 percent of the total money raised in Alaska; the other 20 percent would be deployed in Iceland, Greenland, and Canada. Co-Chair Stoltze appreciated the information. Ms. Lunkin thanked the sponsors for their work on the bill. She shared that PT was currently in the midst of speaking with global investors about deploying significant capital in Arctic Alaska. She planned to speak primarily on the bill's fisheries provision. Co-Chair Stoltze asked for information about other provisions as well. Ms. Lunkin clarified that the fisheries provision was focused on AIDEA financing federally managed industrial fisheries in the Bering Sea. The Alaska fishing industry was the largest employer in Alaska and was the third largest industry in the state; nearly 60,000 Alaskans were employed in commercial fishing and seafood processing. She stated that an additional 11,000 jobs in the state were created by support services industries. She relayed that most additional jobs created by Alaska's fisheries were located outside of Alaska. She stated that the company saw the provision as bringing some of the outside fisheries jobs back to Alaska. She detailed that jobs would be brought back in-state if AIDEA had the ability to guarantee bank loans for quota and or vessels used in the Bering Sea for fisheries including pollock, crab, and cod. The fisheries provision also provided AIDEA loans for shore- based plants, facilities, and equipment within the State of Alaska that were used in support of the Bering Sea fishery. The company believed the bill would increase economic development, infrastructure, opportunities, and keep jobs and profits in-state. 3:27:56 PM Representative Wilson asked what new authority the bill would provide to AIDEA. TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (via teleconference), answered that the bill would establish a new fund that would allow AIDEA to move forward on Arctic projects assisted by the legislature. He communicated that AIDEA had the ability to finance the projects through its revolving fund, but there were side bars for a sample of loan participation that allowed the agency to provide investment at its cost of capital. He noted that development projects through the agency's development program were based on its cost of capital. The different fund would allow the agency to assist the legislature with projects that it wanted to fund and allowed the legislature to set the type of cost of capital for the project; it also set limits on investment. Additionally, the bill would allow the legislature to increase the investment amount through legislation. He provided the Interior energy project funded by the SETS program as an example. Under the SETS program the legislature had instructed AIDEA to invest up to $125 million in low-cost loans at a rate of no more than 3 percent and had provided a capital appropriation to use in combination with the loans. He elaborated that the fund would allow the same type of flexibility for the legislature to use AIDEA as a tool in financing projects that it wanted to move forward. Finally, the bill set up a different fund; therefore, it would not impact the bond rating of the AIDEA revolving fund and funding of other projects. 3:31:40 PM Representative Edgmon spoke in support of the bill that he believed was forward looking. He believed the bill dealt with an issue that was not presently on the radar of the mainstream public. He stated that things were happening quickly associated to the potential opening of the Arctic and issues pertaining to the Arctic Policy Commission. He viewed the bill as providing similar building blocks as those that had led the legislature to the current gas legislation. He opined that the opening of the Arctic would mean bigger things for Alaska. He noted that the fund focused on fisheries. Co-Chair Stoltze made a remark about the state's commercial fisheries. CSSB 140(FIN) was HEARD and HELD in committee for further consideration. 3:33:45 PM AT EASE 3:43:27 PM RECONVENED