SB 54-AHFC WATER & SEWER BONDS/TRANSPORTATION  1:32:28 PM CHAIR COSTELLO announced the consideration of SENATE BILL NO. 54, "An Act authorizing and relating to the issuance of bonds by the Alaska Housing Finance Corporation for safe and clean water and hygienic sewage disposal facility capital projects and transportation projects; providing for the repayment of the bonds and bond costs; relating to the dividend paid to the state by the Alaska Housing Finance Corporation; and providing for an effective date." 1:32:54 PM BRYAN BUTCHER, CEO/Executive Director, Alaska Housing Finance Corporation (AHFC), Department of Revenue (DOR), Anchorage, Alaska, introduced himself and advised that he had a short PowerPoint to introduce SB 54 if someone in the room could change the slides. 1:33:27 PM At ease 1:34:37 PM CHAIR COSTELLO reconvened the meeting and asked Mr. Butcher to begin the presentation. MR. BUTCHER explained that SB 54 would authorize AHFC to sell $101.63 million of tax-exempt capital project bonds to fund projects in the capital budget. The debt service would be paid through AHFC's dividend to the state. MR. BUTCHER began the presentation stating that AHFC's mission is "To provide Alaskans access to safe, quality, affordable housing." MR. BUTCHER reported that AHFC holds approximately 20 percent of the home mortgages in the state, primarily for first-time homebuyers, veterans, and rural residents. The corporation also runs the state's approximately 1,600 public housing units in 15 communities as well as 5,000 to 6,000 housing choice vouchers for apartment rentals. He noted that AHFC runs all public housing for the U.S. Department of Housing and Urban Development (HUD). AHFC also oversees energy efficiency and energy codes for the state and administers grants and federal tax credits that help in building affordable housing for the homeless, seniors, and other programs that benefit the state. He clarified that AHFC is legally separate from the state so the corporation's debt is not state debt. AHFC has its own credit rating, which is currently A+, and issues its own bonds. 1:37:17 PM SENATOR STEVENS asked if the 1,600 housing units were apartments. MR. BUTCHER replied those are apartments primarily built in the 1970s and 1980s when HUD addressed public housing needs by building large multi-story buildings. AHFC still runs and owns those units as well as the housing choice vouchers. He explained that HUD changed the way it administered public housing nationwide about 30 years ago to put people in apartments run by private landlords as a way of addressing the stigma of living in public housing. SENATOR STEVENS asked if assisting private enterprise to build low-cost housing was also under AHFC's purview. MR. BUTCHER answered yes; most of those funds come from federal low-income housing tax credits that the corporation administers for the state. 1:39:02 PM MR. BUTCHER advised that slide 4 provides a snapshot of the dividend payments over the last decade. He noted that the dividend plan is set in statute and the annual dividend payment to the state represents 75 percent of the corporation's net income. He related that the large dividends 20 years ago dropped after the 2008-2009 recession when artificially low interest rates reduced AHFC's portfolio. The $7.4 million dividend in FY2015 was the record low, but it has built up to over $40 million the last two fiscal years. He highlighted that cumulative dividends paid to the state over the last 25 years exceed $2 billion. 1:40:04 PM MR. BUTCHER directed attention to the list on slide 5 of previous legislation that authorized AHFC to sell bonds to support state capital projects. He pointed out that the bond authorizations in the late '90s and early 2000 are similar to the current request in SB 54 for capital project bonds. The funds would be for such things as roads, buildings, ports, harbors, and village safe water projects that the IRS says qualify for tax-exempt debt. Slide 6 lists four proposed capital projects that the Department of Environmental Conservation (DEC) and the Department of Transportation and Public Facilities (DOTPF) would administer. He highlighted that these projects are in the state capital budget and as the bill moves through the process, the names of the projects and each total must match to ensure that what AHFC sells in bonds and finances is authorized and spent through the capital budget. MR. BUTCHER turned to slide 7 that emphasizes that the bonds that AHFC sells will not affect the state's credit and will not be a financial obligation on the state. AHFC would be obligated to pay once it sells the bonds and repayment would be offset by future AHVC dividends as required by AS 18.56.089(c). AHFC currently estimates that the interest rates for the bonds would be between 2 and 3 percent and the term is likely to be 20 years. He directed attention to the fiscal note that estimates the payback of $6-7 million. While interest rates are expected to remain low, the rate will not be established until the bill passes and the bonds are sold sometime in the summer. At that time, AHFC would be able to report the structure of the bond deal, the interest rate, and the annual debt service payments that will come out of the dividend. 1:43:07 PM SENATOR GRAY-JACKSON asked if he said the debt service will be $6 million for 20 years. MR. BUTCHER answered that the estimate is $6-7 million a year. VICE-CHAIR HOLLAND found no further questions and thanked Mr. Butcher for the presentation. 1:43:50 PM At ease 1:45:14 PM CHAIR COSTELLO reconvened the meeting. She referenced slide 6 and asked for a breakdown if there were individual projects associated with each of the four listings. She also asked if other capital projects could be included in the list. MR. BUTCHER said the governor's office decided on the particular projects based on their definition of what qualifies as capital projects. AHFC's role is to check with its tax counsel to ensure that what the state identifies does qualify so AHFC can sell tax-exempt debt according to IRS guidelines. He deferred to the representatives from DOTPF and DEC to provide more detail on specific projects. 1:47:26 PM ROB CARPENTER, Deputy Commissioner, Department of Transportation and Public Facilities (DOTPF), Juneau, Alaska, explained that the projects listed in SB 54 are the match components for the Federal Highway Administration and Federal Aviation Administration programs that are in the capital budget. DOTPF receives approximately $600 million annually from the Federal Highway Administration and approximately $200 million annually from the Federal Aviation Administration. The match for the federal highway program is approximately 9 percent and the match for the federal aviation program is about 6.25 percent. The projects themselves in those programs are supported by the planning documents that are required by the federal government. The federally required Statewide Transportation Improvement Plan (STIP) maps out the projects that are planned for the next four years and the phases of each highway construction project. Similarly, the Airport Improvement Plan (AIP) lists the projects and timelines. He agreed to provide the details of the projects for both but cautioned that they were extensive and not easy to read. CHAIR COSTELLO said she has constituents who are familiar with rural airports in Alaska and there is concern about maintenance and safety at some of these airports. She asked if he or another DOTPF representative could meet with her to provide an update on the airport contracts in local communities and the measures to ensure that those airports are safe. 1:50:08 PM SENATOR GRAY-JACKSON asked for more detail on what projects are included in the match for both the STIP and the AIP. MR. CARPENTER agreed to provide the documents that support the projects in the bill. CHAIR COSTELLO noted that $101.63 million would come out of the capital budget if SB 54 were to pass. She asked if it matters if the capital budget passes before the bill. 1:52:07 PM RUTH KOSTIK, Director, Division of Administrative Services, Office of Management and Budget, Office of the Governor, Juneau, Alaska, offered her understanding that the funds do not come out of the capital budget until the bond bill passes. SENATOR GRAY-JACKSON asked if any of the projects were shovel ready and when they were anticipated to go out to bid. MR. CARPENTER responded that the STIP has projects in many phases many of which are shovel ready and will go out to bid this summer. He reiterated that more details were forthcoming. SENATOR GRAY-JACKSON said she particularly wanted to see the projects that are shovel ready 1:54:47 PM CHAIR COSTELLO held SB 54 for future consideration.