HOUSE RESOURCES STANDING COMMITTEE March 20, 1996 8:20 a.m. MEMBERS PRESENT Representative Joe Green, Co-Chairman Representative William K. "Bill" Williams, Co-Chairman Representative Scott Ogan, Vice Chairman Representative Alan Austerman Representative Ramona Barnes Representative John Davies Representative Pete Kott Representative Don Long Representative Irene Nicholia MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL 388 "An Act revising laws relating to oil and gas leasing to authorize a program of areawide leasing." - PASSED CSHB 388(RES) OUT OF COMMITTEE HOUSE BILL 401 "An Act authorizing the issuance and sale of revenue bonds to fund public wastewater systems, nonpoint source water pollution control projects, including solid waste management systems, and estuary conservation and management projects; authorizing the use of the Alaska clean water fund to pay and secure the bonds and to pay costs related to issuance and administration of the bonds; authorizing certain measures to secure payment of the bonds; and amending Alaska Rule of Civil Procedure 3." - PASSED CSHB 401(RES) OUT OF COMMITTEE CS FOR SENATE JOINT RESOLUTION NO. 39(RES) Relating to the U.S. Environmental Protection Agency draft National Pollutant Discharge Elimination System general permit for placer mining in Alaska. - SCHEDULED BUT NOT HEARD (* First Public Hearing) PREVIOUS ACTION BILL: HB 388 SHORT TITLE: AREAWIDE OIL & GAS LEASING SPONSOR(S): REPRESENTATIVE(S) ROKEBERG,B.Davis JRN-DATE JRN-PG ACTION 01/05/96 2368 (H) PREFILE RELEASED 01/08/96 2368 (H) READ THE FIRST TIME - REFERRAL(S) 01/08/96 2368 (H) O&G, RESOURCES, FINANCE 03/13/96 3110 (H) O&G RPT CS(O&G) NT 2DP 4NR 03/13/96 3111 (H) DP: ROKEBERG, OGAN 03/13/96 3111 (H) NR: BRICE, G.DAVIS, FINKELSTEIN 03/13/96 3111 (H) NR: WILLIAMS 03/13/96 3111 (H) FISCAL NOTE (DNR) 03/13/96 3111 (H) REFERRED TO RESOURCES 03/18/96 (H) RES AT 8:00 AM CAPITOL 124 03/18/96 (H) MINUTE(RES) 03/20/96 (H) RES AT 8:00 AM CAPITOL 124 BILL: HB 401 SHORT TITLE: REVENUE BONDS: WATER & WASTE PROJECTS SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 01/08/96 2378 (H) READ THE FIRST TIME - REFERRAL(S) 01/08/96 2378 (H) CRA, STATE AFFAIRS, RESOURCES, FINANCE 01/08/96 2379 (H) 2 ZERO FISCAL NOTES (REV, DEC) 01/08/96 2379 (H) GOVERNOR'S TRANSMITTAL LETTER 02/20/96 (H) CRA AT 1:00 PM CAPITOL 124 02/20/96 (H) MINUTE(CRA) 02/21/96 2829 (H) CRA RPT 4NR 02/21/96 2829 (H) NR: ELTON, AUSTERMAN, KOTT, IVAN 02/21/96 2829 (H) 2 ZERO FISCAL NOTES (DEC, REV) 1/8/96 03/09/96 (H) STA AT 10:00 AM CAPITOL 102 03/12/96 3088 (H) STA RPT CS(STA) NT 5DP 03/12/96 3089 (H) DP: JAMES, GREEN, IVAN, PORTER, ROBINSON 03/12/96 3089 (H) 2 ZERO FISCAL NOTES (REV, DEC) 1/8/96 03/12/96 3089 (H) REFERRED TO RESOURCES 03/20/96 (H) RES AT 8:00 AM CAPITOL 124 WITNESS REGISTER REPRESENTATIVE NORMAN ROKEBERG Alaska State Legislature Capitol Building, Room 110 Juneau, Alaska 99801 Telephone: (907) 465-4968 POSITION STATEMENT: Sponsor of HB 388. KENNETH A BOYD, Director Division of Oil and Gas Department of Natural Resources 3601 C Street, Suite 1380 Anchorage, Alaska 99503-5948 Telephone: (907) 269-8800 POSITION STATEMENT: Testified on CSHB 388(RES). PAT FOLEY, Chairman Land Exploration and Operations Committee Alaska Oil and Gas Association P. O. Box 100360 Anchorage, Alaska 99510 Telephone: (907) 265-6243 POSITION STATEMENT: Testified in support of CSHB 388(RES). BRADLEY PENN Marathon Oil Company P. O. Box 196168 Anchorage, Alaska 99519 Telephone: (907) 564-6428 POSITION STATEMENT: Testified in support of CSHB 388(RES). KEITH KELTON, Director Division of Facility Construction and Operation Department of Environmental Conservation 410 Willoughby Avenue, Suite 105 Juneau, Alaska 99801-1715 Telephone: (907) 465-5180 POSITION STATEMENT: Department presentation on CSHB 401. MARIE SANSONE, Assistant Attorney General Civil Division Department of Law P. O. Box 110300 Juneau, Alaska 99811-0300 Telephone: (907) 465-3600 POSITION STATEMENT: Available for questions on CS HB 401. LEE SHARP, Bond Counsel Department of Environmental Conservation 429 L Street, Suite 400 Anchorage, Alaska 99501 Telephone: (907) 276-1969 POSITION STATEMENT: Explained proposed amendments to CS HB 401. BERDA WILLSON, Assistant Manager Nome Joint Utilities P. O. Box 70 Nome, Alaska 99762 Telephone: (907) 443-5288 POSITION STATEMENT: Testified in support of CS HB 401. DIANA BENNETT, Finance Manager Anchorage Water and Wastewater Utilities Municipality of Anchorage 3000 Arctic Boulevard Anchorage, Alaska 99503 Telephone: (907) 786-5623 POSITION STATEMENT: Testified in support of CS HB 401. MIKE BURNS, Section Chief Municipal Grants Section Division of Construction & Facilities Department of Environmental Conservation 410 Willoughby Avenue, Suite 105 Juneau, Alaska 99801-1795 Telephone: (907) 465-5136 POSITION STATEMENT: Answered questions on CS HB 401. ACTION NARRATIVE TAPE 96-38, SIDE A Number 000 CO-CHAIRMAN JOE GREEN called the House Resources Committee meeting to order at 8:20 a.m. Members present at the call to order were Representatives Green, Williams, Austerman, Davies, and Nicholia. Representatives Barnes, Kott, Long and Ogan arrived late. HB 388 - OIL & GAS LEASING; BEST INT. FINDINGS The first order of business was CSHB 388(O&G), "An Act revising laws relating to oil and gas leasing as related to land previously the subject of a written best interest finding; amending provisions setting out exceptions to sales, leases, or other disposals for which a revised written best interest finding is not required; authorizing annual offer of land for oil and gas leases if the land, or adjacent land, was the subject of a best interest finding and if preparation of a supplement to the best interest finding for that land is not justified; and modifying the statement of purpose in the Alaska Land Act as it applies to oil and gas leasing." Number 042 REPRESENTATIVE NORMAN ROKEBERG, sponsor of the measure, related that he had reviewed the proposed amendments and is in full accordance with the changes and duly noted a drafting change on page 6. He urged committee's approval of the legislation disclosing that it is caucus priority. CO-CHAIRMAN GREEN recessed the committee due to lack of quorum. REPRESENTATIVE ALAN AUSTERMAN asked for explanation of the drafting change on page 6. Number 141 CO-CHAIRMAN GREEN explained the change was a drafting preference by the drafter which rearranged committee recommendations. Number 212 REPRESENTATIVE ROKEBERG approved of the drafting change because he felt that it made the language clearer. CO-CHAIRMAN GREEN announced that the committee had a quorum and entertained motion to adopt the committee substitute. CO-CHAIRMAN BILL WILLIAMS moved for the adoption of the proposed committee substitute for HB 388(RES), Version "M." CO-CHAIRMAN GREEN asked if there was an objection. Hearing none, CSHB 388(RES), Version "M" was adopted. Number 281 REPRESENTATIVE JOHN DAVIES offered the following amendment to page 6, line 27: Following: "may" Insert: ", for state land north of the Umiat baseline." REPRESENTATIVE DAVIES explained that the amendment would make the bill applicable to the North Slope. The reason being he believes the situation on the North Slope where the homogeneous distributions of land there are suitable to the areawide proposals in HB 388, and the heterogeneous nature of the Cook Inlet Basin which are not so suitable to the bill, thus the reason for offering the amendment. Number 350 REPRESENTATIVE ROKEBERG indicated objection to the adoption of the amendment, saying that the amendment does a very specific thing. The bill before the committee, Version M, is non-specific to area, it is also discretionary in a large degree. The Oil and Gas and Resources Committees spent a substantial time, during the interim, having major discussions and hearings. This is a topic that was discussed in the Governor's Oil and Gas Policy Council and there was concern expressed by the Administration about the Cook Inlet area. That is why major accommodations were made and revisions in the original bill to remove specific geographic areas from the statutory changes to give the commissioner the ability to incrementally implement this process as he sees fit. As the we have heard from the director of the Division of Oil and Gas, he is in support of this. CO-CHAIRMAN GREEN addressed Ken Boyd for his position on the amendment. Number 490 KENNETH A. BOYD, Director, Division of Oil and Gas, Department of Natural Resources, testified via teleconference from Anchorage. He stated he understands the amendment. He said, "Once you build a foundation finding, I think that's the key. As long as you have a complete finding, the annual offer of sales, no matter where they are, is somewhat perfunctory. The sale isn't the issue, it is the finding and once you can do the finding, you can have the sale. So, I don't think you absolutely need sale area specificity, but I do know that the first sale that will take place under this new system, if you like - it isn't really new - it's new and (indisc.), will take place on the North Slope and it will take place between the Colville and the (indisc.) as it is currently under schedule, as the letter I wrote to the committee on the sixteenth of January." Number 568 MR. BOYD felt that it would be harder in Cook Inlet because the title is less clear, there are more people living there and the land ownership is somewhat uncertain. MR. BOYD said he believes that the process, as described in the new legislation, is universally applicable. He said, "Only time will tell, as to whether we can create a finding that will satisfy all the people that will be subjected to that finding, but once you do that - once you have that foundation finding and give people the opportunity to comment on a yearly basis, and create a supplement to the finding based on that new information, I do not believe that you would need area specificity." Number 621 CO-CHAIRMAN GREEN said that he would object to Representative Davies amendment. He then asked for a roll call vote. Representatives Davies and Nicholia voted in favor of the amendment. Representatives Austerman, Ogan, Williams and Green voted against the amendment. So, the amendment failed. Number 671 PAT FOLEY, Chairman, Lands Exploration and Operations Committee, Alaska Oil and Gas Association, testified via teleconference from Anchorage. He stated that he had nothing to add to the testimony except his support for committee substitute, Version M. Number 699 BRADLEY PENN, Marathon Oil Company, was next to testify via teleconference from Anchorage. He testified that the committee substitute, Version M, streamlines the existing process and helps the Division of Oil and Gas prepare best interest findings on an areawide basis. Marathon Oil Company supports CSHB 388(RES), Version (M). CO-CHAIRMAN GREEN asked if there was anyone else wishing to testify. There being none, he closed the public hearing on HB 388. Number 783 REPRESENTATIVE AUSTERMAN made a motion to pass CSHB 388(RES), Version M, out of committee with individual recommendations and a zero fiscal note. CO-CHAIRMAN GREEN called for a brief at ease. Number 829 CO-CHAIRMAN GREEN acknowledged the motion to move CSHB 388(RES), Version M. Number 840 REPRESENTATIVE AUSTERMAN then withdrew his motion. CO-CHAIRMAN GREEN announced the committee will probably be recessed until later in the day at which time a vote will be taken. HB 401 - REVENUE BONDS: WATER & WASTE PROJECTS Number 866 C0-CHAIRMAN GREEN announced that the committee would hear HB 401, the Administration's bill on revenue bonds for water and waste water projects. Number 900 KEITH KELTON, Director, Division of Facility Construction and Operation, Department of Environmental Conservation (DEC), said he would explain HB 401 and the Senate companion bill SB 207. First, he explained what the department is trying to do and where they came from with this program. Prior to 1987, the DEC administered a construction grants program assisting communities in financially constructing waste water treatment facilities. He emphasized, "grants." In 1987, the Federal Clean Water Act was amended and reauthorized to eliminate the grants provision. In its place, they put in a loan program. MR. KELTON stated, "We have been administering this loan program which was capitalized with state and federal dollars for the last seven years. We've had, up to this time, enough money to meet the demand for this program. In the last two years, demand has started to exceed the available resources for these loans. So, we started looking around to see what the other states are doing. We found that there is 20 other states, nationwide, which have put in a program to leverage the amount of money that is available for loans by selling revenue bonds and using the corpus of the account as collateral. So working with the Departments of Law and Revenue and financial advisors, through bond counsel, we've developed a bill that we think has the ability to provide an alternative funding source for local governments. As general funds diminish and grants become less available, we will have another tool in the box which would enable communities, as long as they are incorporated and have a dedicated revenue base to repay the loans, they could come in to us to get financial assistance for funding wastewater treatment facilities, non-point source, pollution control problems. Number 1039 MR. KELTON left the table to explain departmental chart. "Looking at this chart, the top half is what is currently in place. The Clean Water Fund was created by statute in 1989 I believe. It capitalizes federal grants. For each dollar that comes in from the federal government, the state puts in 20 percent, so it comes out about 83 to 17 percent ratio. It goes into this fund, the money is loaned out to eligible municipal projects and repayment principal and interest comes back. These are 20 year loans and right now the interest rate is slightly under 4 percent. It fluctuates based on the municipal bond index, so whatever the national economy does, it changes slightly. It has never been above 5 and it has been as low as 3.5. So, it's a very attractive interest rate. It's better than anything else, I am aware of, on the market. The top half of this is in place, has been in place, we have been administering this program for six or seven years." Number 1099 MR. KELTON said, "The money that is coming into this program, so far, has been a total of $80 million. Of that $80 million, $50 million has gone out to current projects. Of that, a good share of it has started to come back as repayments now, but there is still is a $30 million unobligated balance, and that's what we propose to use as a corpus for the revenue bonds - the collateral to issue these bonds. So this legislation sets up a bond redemption fund, taking money from the clean water fund to pay for the issuance costs of revenue bonds. These bonds, through the State Bond Committee, which are the Commissioners of Revenue, Administration and Commerce, and their financial trustees, when they issue the bonds to investors, the bond proceeds come back up through the clean water fund and the process is completed with going out for projects, coming back as repayments. The repayment stream then comes back and pays off the investors." Number 1192 MR. KELTON set up a new chart to explain how the money actually balances over a period of time. "This chart, I won't say hypothetical, but it represents a period of time, based on assumptions, that may not be quite verifiable as you go along. To try level it out, we took a nine year average. Representing the clean water fund in the denter, ideally, what you want to do is have the cash coming in equal the cash going out on bond sales versus loans." MR. KELTON said, "In the Senate, originally, and in the House State Affairs, this bill was amended to limit the amount of revenue bonds, that we sold in any one year, to $15 million. So, that forms the basis for a couple of the assumptions on here. So assuming that we have a point in time representing a nine-year average, the loans that are out there, the repayment of principal and interest represents $6.5 million coming back into the clean water fund. The $15 million annual revenue bond sales amount to $14.7 by the time you take out the cost of the bond sales. There is an unknown amount that we are showing as zero right now. The Clean Water Act is up for reauthorization again currently and we do expect that there will be a reauthorization which will, along with the state match, continue to put some funding into here, but we're showing that as zero for the moment." Number 1273 MR. KELTON continued, "Also, there is some interest earned on that $30 million corpus that's out there, that represents about $3 million a year. So, going out, we have the debt service to pay off the bonds $3.8 million. We have a loan disbursement which can be $15.8 million a year of new loans. And, as we sell the $15 million each year, the figures work out that we have to set aside a corpus allocation of $3.85 million. So, that's withdrawn from the money available, but it goes back in and earns interest. And, we have capitalized interests on the bonds of $750,000. In a balancing equation, using this set of assumptions, we are showing about $24 million a year going in and out, which would represent $16 million, roughly, of available loans, per year, for eligible projects. And as I said, these are available to any incorporated community that has a revenue base, revenue stream, generally for revenue bonds it would be the user fees that would be derived from the utility operations to pay back the loan." Number 1331 MR. KELTON said, "In your packet there is a summary of the loans that are currently in place. You will notice that it has benefitted communities from the size of Craig all the way to Anchorage. In fact some of the smaller places are Homer, Kachemak, Seward, Cordova, Craig, Nome is on the rural fringe of the applicants, but to be quite honest the majority of these funds have been taken by Anchorage. Of the $50 million, $30 million has gone to Anchorage, to date. It generally will be a more popular program with the communities that have more of a revenue stream to repay, but it certainly does provide an alternative funding source for all communities. By taking some of the pressure off the general fund, through loans, it should be in a position to benefit all communities." Number 1392 MR. KELTON responded to question from Representative Austerman that the $30,000,000 just acts as collateral. If you get a house loan, or a personal loan, you use some of your property as collateral. That is all this is doing, it is ensuring that we can get a higher bond rating. Number 1453 REPRESENTATIVE AUSTERMAN referred to the $50 million that is already out there and then said this authorizes up to another $15 million, each year, of new bonds which is a part of the revolving loan program. He asked how much money would be accumulated over a ten year period and how much money would be accumulated into the revolving loan program. MR. KELTON said, "There would be $150 million of new funds going into it if you upped the maximum each year. There is no requirement that we sell the maximum and there might not be the demand each year. Also, I can't quite answer that question because I don't know at what rate some communities may wish to pay it back. There will be a return stream coming back for the loans maybe for up to any time - up to 20 years. We have had some instances where they have been paid back within a three year period, already. So there is no guarantee what the revenue stream will be, but when we sell the revenue bonds, that is what the bond counsel and the state bond committee will look at, is what the stream is on an individual basis each year to determine what the maximum that the market will bear, up to $15 million. It may be less than $15 million in some years. I don't anticipate that." Number 1508 REPRESENTATIVE AUSTERMAN wanted further clarification as to how much money is needed in this revolving loan fund. He said he keeps going back to the word "revolving" because this money comes back in to be loaned out again. He asked how far out and how much money do they need to borrow so that there is enough money in this revolving loan program to put it out there. Number 1538 MR. KELTON referred to a chart and said, "This is a point in time after nine years, the year 2005. At that point in time, we would be able to have, in essence, $24 million coming back into it which is only going to allow us to loan out $15 or $16 million. That is the end of your ten year period in essence of $150 million, so that's really going to be your cap right there. We can't go over $150 million total of revenue bonds at any one time. This should be close to representing the maximum amount of money that will be available in this program unless there is a change in the statutes." Number 1609 MR. KELTON responding to further questions from Representative Austerman confirmed that the interest rate being paid on the bonds will probably be slightly higher than the interest rate that the communities are paying to keep their loans viable. The reason they are able to do that is because we do have the $30 million in there as well as the original $50 million that is already loaned out as additional money that is drawing interest. Number 1634 MR. KELTON said, "The faster this process can be put in place, the more money we'll have available to use as collateral to leverage additional funds. At the current rate, we're making loans at $12 million a year. So, the $30 million collateral, next year, will be down to $17 or $18 range, and we would not have nearly as effective a program if we had to wait for a year or two to get this legislation through." CO-CHAIRMAN GREEN, Representative Austerman and Mr. Kelton continued the discussion to clarify the arithmetic. Number 1727 MR. KELTON said, "The mathematics do work out, we have spent a lot of time with financial advisors in New York to come up with this and pattern it after the history of the other 20 states that are doing this. I don't think we're off too far. I apologize because I can't explain it any better than I am but..." Number 1780 MR. KELTON responded to questions from Co-Chairman Green that as long as the program was sound, which the bond market would dictate, we would still be able to sell the $15 million each year up to the cap imposed by the statute without any difficulty. Number 1822 MR. KELTON responded to a question from Representative Davies that they are interest free bonds and the department expects a AA bond rating. He said the state bears no liability. REPRESENTATIVE DAVIES wondered if the state is paying a percent or two more than what the revolving loan fund is doing, then are we making that up with the interest on the corpus. An unidentified departmental representative in the audience agreed that was correct. Number 1892 CO-CHAIRMAN GREEN asked Mr. Kelton to address the proposed amendments. MR. KELTON deferred to the Department of Law. Number 1911 MARIE SANSONE, Assistant Attorney General, Civil Division Department of Law, stated that the proposed amendments are primarily to clarify the language in the bill and to correct a few errors that came up in the course of drafting the committee substitute. She said the first amendment is the clarification in the bond cap language. She suggested that bond counsel might better explain the amendment. The following is Amendment 1 relating to clarification in the bond cap language: Page 2, lines 14-15: Following: "revenue bonds" Insert: "under AS 37.15.560 - 37.15.605" Page 2, line 15: Following: "total" Insert: "unpaid principal" Page 2, line 16: Following: "bonds" Delete: "outstanding at any one time" Insert: ", including refunding bonds, but excluding refunded bonds, issues under the provisions of AS 37.15.560 - 37.15.605," Page 2, lines 16-17: Following: "$150,000" Delete: "including principal and interest owed on the bonds" Number 1953 LEE SHARP, Bond Counsel, Department of Environmental Conservation, testified via teleconference from Anchorage. He stated that they are suggesting the amendments in order to clarify some of the language so that when it comes time to compute exactly what the limit is, there won't ben any doubt about how you treat various items. The original language included interest in the computation of the total - $150 million cap. It wasn't clear whether that's the interest that is due this year or the interest that is due over the life of a bond. It also raised a question on how you would compute interest if you have a floating rate bond. You wouldn't know exactly what the interest is going to be. MR. SHARP said the suggested language looks solely at the principal amount that is unpaid. This is a very clear computation. He said they are also suggesting that the language be added to ensure that there is no confusion about the limitation on the Bond Committee because the Bond Committee does issue other bonds, other revenue bonds. Mr. Sharp said they are suggesting that language be added to make sure that when we look at this cap we are looking only at bonds that have been issued under this program. Number 2057 REPRESENTATIVE DAVIES moved Amendment 1. CO-CHAIRMAN GREEN asked if there was an objection. Hearing none, it was so ordered. Number 2070 REPRESENTATIVE DAVIES moved Amendment 2. The following is Amendment 2 relating to grammatical clarification (limit scope of term `money and revenue'): Page 4, lines 8-9: Following: "pledge of" Insert: "such" CO-CHAIRMAN GREEN asked if there was an objection to adopting Amendment 2. Hearing none, Amendment 2 was adopted. Number 2083 REPRESENTATIVE DAVIES moved Amendment 3. The following is Amendment 3 relating to a grammatical clarification (singular to plural): Page 5, line 12: Following: "default to" Insert: "any" CO-CHAIRMAN GREEN asked if there was an objection. Hearing none, Amendment 3 was adopted. Number 2095 REPRESENTATIVE DAVIES moved Amendment 4. The following is Amendment 4 which corrects a typographical omission. Page 6, line 28 Following: "refunding" Insert: "bonds" CO-CHAIRMAN GREEN asked if there was an objection to adopting Amendment 4. Hearing none, Amendment 4 was adopted. Number 2104 REPRESENTATIVE DAVIES moved Amendment 5. The following is Amendment 5 which allows municipalities and state agencies to access the Alaska Clean Water Fund for bond insurance and other collateral security for local obligations. "Other qualified entities" should also have access to the Fund for this purpose. Page 9, line 26: Following: "municipal" Delete: "or" Insert: "," Following: "state agency" Insert: ", or other qualified entity" CO- CHAIRMAN GREEN asked if there was an objection to the adoption of Amendment 5. Hearing no objection, Amendment 5 was adopted. CO-CHAIRMAN GREEN announced he would take teleconference testimony on CSHB 401(RES). Number 2140 BERDA WILLSON, Assistant Manager, Nome Joint Utilities, testified via teleconference from Nome in support of HB 401 and related her 30 year residency in Nome and the many years with rudimentary sanitation and water facilities. She said, "I want to make sure that clean water loans continue. Communities need access to low interest loans and (indisc.) grants are becoming more scarce and communities must have an alternative source of funds provided the (indisc.) public (indisc.) for solid waste facilities. Nome Joint Utilities has taken advantage of two clean water loans, one for a new sewage treatment and a lagoon and another for extending the sewage and water rights to a new subdivision. (Indisc.) gave about 60 plus (indisc.) access to pipe water and sewer. The City of Nome (indisc,) has also participated in a clean water loan. I would like to speak in favor and ask that the clean water fund - loan program continue. CO-CHAIRMAN GREEN asked if there were favorable results on the reduction of hepatitis with these kinds of loans and clean up of sewage facilities. MS. WILLSON responded, "Absolutely!" She noted there is a reduction in other diseases that are caused by poor sanitation. Number 2260 DIANA BENNETT, Finance Manager, Anchorage Water and Wastewater Utilities, Municipality of Anchorage, testified via teleconference in support HB 401 and SB 207. She said these bills authorize the state of Alaska to issue revenue bonds for the purposes of wastewater and other water quality assistance projects. Ms. Bennett said their six year capital improvement budget forecasts a program of capital construction ranging from $5 million to $10 million annually. The current rate payers cannot and should not support the entire long-term capital program. Ms. Bennett said their plan is to finance $4 million to $6 million each year with loans from the Alaska Clean Water Loan Program. She said she hopes the money will be available to do so. Without this bill and the opportunity to leverage capitalization grants, they are concerned that their utility and other incorporated municipalities throughout the state, will be forced to turn to higher cost financing sources with a subsequent negative impact toward rate payers. These revenue bonds provide a practical, prudent and sound financial option. Ms. Bennett continued to give testimony in support of the legislation and urged it be passed out of committee and on to the floor. CO-CHAIRMAN GREEN said there was a question earlier about the adequacy of the amount if there was a run on the number of the requests made that there might be a period of time when there wouldn't be a sufficient number of dollars available. He asked Mr. Sharp if he had anything to add to that discussion. Number 2444 MR. SHARP responded to Co-Chairman Green's question about there possibly being a period of time when there was not a sufficient number of dollars available. That was one caveat, you cannot go out and issue $15 million. You have to be assured you are going to be able to make those kinds of loans. In other words, you cannot just go out and borrow the money and put it in the bank. [END OF TAPE] TAPE 96-38, SIDE B Number 000 CO-CHAIRMAN GREEN asked, "Would there still be availability for borrowing money?" Number 010 MR. SHARP replied, "As long as you have money coming in from the municipalities repaying their loans, you would have that that you could loan back out again. If you do not have the sufficient amount of that money coming back in to meet the loan demand, taking into account the $15 million of new funds (indisc.--paper shuffling) then you would simply tell the municipalities you're gonna come back next year or they're on the list. One solution to that would be, of course, to remove the cap or to raise it to give the state more flexibility." Number 032 CO-CHAIRMAN GREEN clarified that Mr. Sharp meant that it is not likely but it would be mathematically possible. The probability is that there will be funding available since it won't always be a $15 million hit and it will not be a full 20 year payback. He said the probability is there will be funding available. MR. SHARP deferred to Mr. Kelton. Number 057 CO-CHAIRMAN GREEN wondered how the department prioritizes multiple requests from communities that exceeded the $15 million amount. Number 067 MR. KELTON stated, "There is a process for that. Since this is a federal program, it comes with its own rules and regulations that we have to adhere to. One of those is the requirement that we develop an annual intended use plan. That intended use plan does rank and prioritize projects base of environmental concerns, health concerns and a variety of other factors which generates a list, and it would be out intention to try to handle as many projects as possible in a year. We would never want to give all $15 million to one or two projects. We'd try to use our list to benefit as many different places as possible." Number 093 REPRESENTATIVE AUSTERMAN asked if the department anticipates receiving additional federal dollars into the program. MR. KELTON anticipated it, but could not guarantee it. The Clean Water Act is up for reauthorization this year. It has passed the House, but he doesn't think it is going to pass the Senate. It may be a year or two before they know that for sure. There is appropriation language even though there is no authorization out at this point in time which would continue authorization at about $1.2 billion, nationwide. He said our share of that would be somewhere around $6 million, if it happens. There is also amendments in the House side of Congress which would say, "unless there is authorization, there will be no appropriation until that authorization is achieved." He said he thinks it going to happen, but it probably is not going to happen for federal fiscal year 97. He noted that is not factored into the equation on the chart. Number 139 MR. KELTON informed the committee, "The federal law does allow the state match to be paid for by the proceeds of the revenue bond sales. Currently, we are providing the state match from GF (general funds) at 20 cents on the federal dollar. That is a expense the state will be able to pass off onto the sale of the revenue bonds as well." Number 156 REPRESENTATIVE AUSTERMAN expressed his support of the concept of the bill and clarified that he is just trying to understand it. Number 165 REPRESENTATIVE DAVIES wanted definition of the $3 million interest earned, and asked if that is anticipated on the $30 million or is it earning interest on other funds that are flowing in and out. MR. KELTON responded that the interest earned is primarily on the $30 million corpus. There are a few other small interest bearing accounts. The bond sale process generates some interest, but it is primarily on the corpus. REPRESENTATIVE DAVIES questioned whether that is a 10 percent rate of return. Number 194 MIKE BURNS, Section Chief, Municipal Grants Section, Division of Facility Construction and Operation, Department of Environmental Conservation, elucidated that this is a nine year average. He said the $3 million is averaged over 9 years. It would be much smaller than that in the first years and in the year 2005, it would be much larger. The $30 million will grow slightly over the years. REPRESENTATIVE DAVIES conjectured that another way to look at this is, "a snap shot in time, about five years out." He said assuming that the $30 million is going to grow, what is the source of the growth? MR. BURNS replied that this will be invested by the Department of Revenue much like the permanent fund earnings are. These numbers were generated, actually, at about 6.7 percent rate of return which was the recommendation of the financial advisors. Number 258 REPRESENTATIVE DAVIES asked, "Where does the money come from to increase the size of the $30 million collateral?" MR. BURNS answered, "The corpus allocation. As repayments come in, the state bond committee recommends a certain size of the corpus that must be attained to secure the fund to keep market ratings up. So, that much is set aside to make sure that we have a conservative secure program which is exactly what we want to achieve." MR. BURNS wanted to address earlier concern of Representative Austerman and said, "We were mixing up a little bit of apples and oranges here, you said loan disbursement is approximately $15.8 million, that does not really compute with the $200 million in portfolio, out there. We would only have the $200 million, in portfolio, out there, in repayment status after the year 2005. It would be probably closer to the year 2009 when you had all the money lent out and in repayment status. So, at that point, of course we'd have -- we would be able to do much more than $15.8 million, but this $15.8 is just an average of the year 96 through ought 5, so we don't want to mix the things up there. Certainly in the year 97 and 98, we'd have much less ability than $15.8." CO-CHAIRMAN GREEN interpolated, "That cap, it floats." MR. BURNS agreed, "We expect the fund to grow. He is right, it is a revolving loan program. We expect to achieve an equilibrium and, hopefully, that equilibrium would be somewhat close to demand. Right now, it is not anywhere close to communities demand as you can tell." Number 334 REPRESENTATIVE DAVIES rephrased for clarity, "It seems to me, in really simplistic and basic terms, what we've got - right now we've got about $30 million in the bank, and if we loan that out at $15 million a year, we'd be done in two years. So, we would have a total of $30 million revolving out there." MR. BURNS agreed. REPRESENTATIVE DAVIES continued, "But, what we are proposing to do instead is to loan out -- to issue $15 million worth of bonds, per year, for about ten years and to use the interest income on the $30 million that we are keeping in the bank, both as collateral, but as a generator of income, to pay the debt service on these bonds. So, by doing this we can go out somewhere around ten years, I don't know where we actually achieve equilibrium, but on the order of ten years. And so instead of having $30 million out there revolving, by leveraging it this way, we have $150 million out there revolving. It's supported by the interest coming off the $30 million and the (indisc.). Is that right?" Number 383 MR. BURNS said that is correct. He said the primary payback or income from the program will be loan repayments from the communities and the people who use the projects. He said the differential that has to be made up - this is a low interest program and that is why it is attractive - the differential between that and market value of the bonds would be made up by the interest that they would have invested. It is actually quite simple when you think of it that way. Number 440 REPRESENTATIVE AUSTERMAN made a motion to move CSHB 401(RES), Version C, as amended, out of the committee with individual recommendations and the attached zero fiscal notes. Hearing no objection, it was so ordered. HB 388 - OIL & GAS LEASING/ BEST INT. FINDINGS Number 454 REPRESENTATIVE RAMONA BARNES moved and asked unanimous consent to move CSHB 388(RES) from committee with individual recommendations. Number 474 REPRESENTATIVE DAVIES objected. CO-CHAIRMAN GREEN asked for a roll call vote. Representatives Austerman, Barnes, Kott, Long, Nicholia, Williams and Green voted in favor of moving the bill. Representative Davies voted against moving the bill. So, CSHB 388(RES) moved out of the House Resources Committee. ADJOURNMENT There being no further business to come before the House Resources Committee, Co-Chairman Green adjourned the meeting at 9:20 a.m.