SB 274-HOUSING PROGRAMS Number 0488 CHAIR WILSON announced that the next order of business would be SENATE BILL NO. 274, "An Act relating to the housing assistance loan fund in the Alaska Housing Finance Corporation; creating the housing assistance loan program; repealing loans for teacher housing and providing for loans for multi-family housing; making conforming amendments; and providing for an effective date." Number 0545 DAN FAUSKE, Chief Executive Officer/Executive Director, Alaska Housing Finance Corporation, Department of Revenue, testified in support of SB 274 and answered questions from the members. He read a statement into the record as follows: SB 274 will make two changes to the rural loan program. It will replace the Housing Assistance Loan Fund with the Housing Assistance Loan Program. This bill will also replace the Rural Teacher Housing Loan Program with the Rural Multi-Family Loan Program. The changing of the Housing Assistance Loan Fund from a fund to a program is necessary as a result of the liquidity concerns at the corporation. The current revolving nature of the fund limits the fund to being used only to purchase new loans under this program. For fiscal year 2003 over a third of the corporation's net income was in this fund. With the corporation paying a dividend of $103 million to the state the funds paid to the state have continued to come entirely out of our working capital because of the restrictions of the Rural Loan Fund. This has resulted in the liquid assets of the corporation declining at an accelerated rate. In addition the revolving fund has not really revolved for several years and new loans in the program have exceeded the cash available in the fund causing the corporation to use its working capital to purchase and hold loans for reimbursement from the fund. This legislation will allow the program to operate in the same way our other programs do, and other than this change the program will continue to operate the same way. The other phase would change the Rural Teacher Loan Program to the Rural Multi-Family Loan Program. The passage of SB 181 in 2002 changed the Rural Multi- Family non-owner occupied loan program into the Rural Teacher Loan Program. This change required anyone using the program to fill their duplex, four-plex, or any other multi-family building with at least one teacher in every unit. As a result of this restriction in the year and a half that the program has existed there has not been a single loan made. Before this change the multi-family program made up between 2 percent and 3 percent of our rural business. This bill will change the program back into the Rural Multi-Family Program available to anyone including teachers. It will also allow an owner to occupy one of the units if they so choose. MR. FAUSKE reminded the members that Alaska Housing Finance Corporation (AHFC) is also in the process of putting in place the Teacher Housing Loan Program and the General Agreement on Tariffs and Trade (GATT) Program that are applied across the state. There are applications and work in progress in a variety of areas around the state, he added. He said he did not want to mislead the committee that AHFC is going backwards. Number 0680 REPRESENTATIVE SEATON moved to adopt SB 274, 23-GS2095\A, as the working document. There being no objection, version A was before the committee. Number 0760 REPRESENTATIVE COGHILL asked for clarification on the change between the fund and the program. MR. FAUSKE replied that he will have Joe Dubler speak to this, but offered a brief explanation of the difference between a program and a fund. He explained that it has to do with the intricacies of how AHFC buys and sells bonds, and recycles loans. There are restrictions on co-mingling funds between programs and funds. With the exception of the [Housing Assistance Loan Fund] all of AHFC loans are administered through programs. He explained that the fund was created under statute. Alaska Housing Finance Corporation has a hard time purchasing loans from this fund with monies from other programs, with the exception of cash placements from AHFC's general fund into the fund, he clarified. Number 0769 JOE DUBLER, Chief Financial Officer (CFO), Alaska Housing Finance Corporation, Department of Revenue, testified on SB 274 and answered questions from the committee. The Housing Assistance Loan Fund that is being discussed is the revolving loan fund that came to AHFC when there was a merger with the then Department of Community and Regional Affairs in 1992, he explained. The fund was set up as a revolving fund to protect the assets so it could only be used statutorily to make new loans under that program. The corporation administers a lot of different loan programs very successfully throughout the state, Mr. Dubler said. It is AHFC wish to make this another one of those programs so it is not restricted to using only the assets in that fund for that specific program. It will mean that AHFC will be able to sell bonds to back loans that are now pledged to a fund that cannot be used now, he added. Mr. Dubler emphasized that there is about $515 million, about one-third of AHFC's net assets, which is locked up in the fund and that cannot be used. REPRESENTATIVE COGHILL commented that he believes the original policy call that occurred was to have a fund where the assets would build up. He asked if changing the fund to a multi-family loan program will mean the original intent of the fund will be superceded. MR. DUBLER responded: It is a dual-purpose bill. The only part of it is related to the multi-family aspect of it, of this program. The rest will just take the whole program, the majority of it are single-family loans in Rural Alaska and that will remain the same it will just be shifted out of a revolving fund so we can use those assets for...leverage those assets basically. Number 0899 MR. FAUSKE added that the other feature of the bill that was referred to, the multi-family [loan program], was created to fix the problem that was created a couple of years ago which has not resulted in any loan activity. It is important to get back into a mode where AHFC has access to these funds, he commented. Mr. Fauske told the committee that negotiations took placed over many years and there was finally a compromise to get the bill to move. He explained that at a time when AHFC is trying to get investments out for rural and teacher housing it does not make sense to restrict loans by saying the housing must be occupied only by teachers. The intent is not a bad idea, but in practice it has not worked. For example, in many of the small rural areas where there will be an individual who has some money and wants to build a four-plex, live in one unit and rent three others out to teachers, this program restricted that kind of loan and denies access to some capital investments. It is important to get this program fixed, he summarized. CHAIR WILSON recalled that originally the program was established to provide teachers with decent housing. However, the program just did not work. MR. FAUSKE agreed that the program did not work. The revision in SB 274 will put the program back in an arena that will attract investors and make it easier for individuals to participate. CHAIR WILSON commented that it was the legislature's goal to provide decent housing for teachers in Rural Alaska so they would be more likely to remain there. She stated that she believes the original goals can be achieved with the changes provided in the bill. Number 1013 REPRESENTATIVE SEATON referred to Section 3, page 3, line 28 through 31, where it refers to the mortgage interest rate being one percent less. He commented that the lower interest rate use to be for small community housing for teachers; however, in this bill the lower interest rate will be for multi-family housing. Representative Seaton asked if there is any leverage that ensures the housing is focused on teacher housing. He interprets this language as saying that no one in the housing needs to be a teacher. Number 1057 MR. FAUSKE replied that there is a distinct advantage for someone to build a unit that houses teachers because there are some financing programs available to offset some of the costs, such as the GATT program that is being done in conjunction with the AHFC, Denali Commission, Rasmuson, and United States Department of Agriculture (USDA). Aside from the on-going program that the corporation offers for energy-efficiency and interest rate reductions, there is another avenue that adds another layer of possibilities for individuals. This would also allow an investor that wanted to approach the school district and offer a long-term agreement to provide housing to teachers and the financing would then be there to provide housing to teachers and health professionals. Mr. Fauske said that AHFC will do its part to provide the marketing to make sure lenders are aware of it so when someone walks off the street to a lending institution they will be aware of all the programs available to the borrower. REPRESENTATIVE SEATON emphasized that he just wants to make sure there is some context in providing teacher housing. Number 1153 REPRESENTATIVE SEATON moved to report SB 274, 23-GS2095\A, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, SB 274, version A, was reported out of the House Health, Education and Social Services Standing Committee.