Legislature(2015 - 2016)HOUSE FINANCE 519
03/26/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB101 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 101 | TELECONFERENCED | |
| += | HB 136 | TELECONFERENCED | |
| + | SB 64 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 26, 2015
1:33 p.m.
1:33:13 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 1:33 p.m.
MEMBERS PRESENT
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
Representative Mark Neuman, Co-Chair
Representative Bryce Edgmon
ALSO PRESENT
Representative Bob Herron, Sponsor; Dan Winkelman,
CEO/President, Yukon-Kuskokwim Health Corporation; Deven
Mitchell, Executive Director, Alaska Municipal Bond Bank
Authority, Department of Revenue.
SUMMARY
HB 101 MUNI BOND BANK LOANS TO REG HEALTH ORGS
HB 101 was HEARD and HELD in committee for
further consideration.
Co-Chair Thompson reviewed the agenda for the day. He
indicated that he did not intend to move the bill out of
committee.
1:34:38 PM
HOUSE BILL NO. 101
"An Act relating to the Alaska Municipal Bond Bank
Authority; authorizing the Alaska Municipal Bond Bank
Authority to issue bonds or notes for a regional
health organization; and providing for an effective
date."
1:34:42 PM
REPRESENTATIVE BOB HERRON, SPONSOR, began by reading the
sponsor statement:
Muni Bond Bank loans to Regional Health Organizations
HB 101 provides Regional Health Organizations direct
access to the Alaska Municipal Bond Bank (AMBB) for
the purpose of issuing debt, in an amount not to
exceed $250 million. In 2014, the Legislature passed
SB 218 which allows AMBB to issue bonds on behalf of
the University of Alaska for their new power plant.
This bill aims to accomplish the same results for
Regional Health Care Organizations.
AMBB is a public corporation of the State of Alaska
established to aid Alaska municipalities in financing
capital improvement projects. AMBB generates funding
by selling bonds on the national market, and using the
proceeds to purchase bonds from local governments.
AMBB leverages its credit ratings into lower interest
rates than municipalities would be able to borrow
independently. These municipalities then pay principal
and interest to the Bond Bank on their debt.
Utilization of the State's moral obligation pledge has
not cost the State as every loan that the AMBB has
entered into over the last 40 years has been paid.
Currently, regional health organizations have indirect
access to the Bond Bank by partnering with a
municipality to apply to the Bond Bank on a conduit
basis. All non-profits that want to issue tax exempt
debt in Alaska must do so through a municipality on a
conduit basis. However, even though the debtor is not
the municipality, not all municipal governments are
willing to consider using the Bond Bank on the behalf
of a local non-profit due to the complexity of the
bonding process.
Benefits of Utilizing the Bond Bank
The Bond Bank has an excellent loan record with 100%
of loans repaid and in conjunction with state support,
has received "AA+" credit ratings from both Standard &
Poor's Ratings Services and Fitch Ratings. Strong
credit ratings allow the Bond Bank to borrow money at
favorable interest rates. Smaller communities are at a
disadvantage in the financial markets. They may have
lower bond ratings, and although credit worthy, have
not issued bonds or notes, have little outstanding
debt, or lack investor familiarity. Over the last 10
years, the Bond Bank has saved Alaskan communities
approximately $112 million, and has secured over $1.5
billion dollars since inception to finance the
construction of key projects; including schools,
roads, utilities, harbors, hospitals, and other
municipal facilities.
Yukon-Kuskokwim Health Corporation (YKHC) Proposal
Regional health organizations in Alaska have been
constructing new health infrastructure in coordination
with the federal government's Indian Health Service's
Joint Venture Construction Program (JVCP). Joint
Venture Construction Program is a competitive federal
program whereby the regional health organization
agrees to construct new health infrastructure and then
the federal government will request additional
staffing for the new facility from Congress.
Four JVCP projects have recently been built in Alaska.
At this time, the federal government is considering
two additional JVCP projects in Alaska, one of which
is a large rural project with the Yukon-Kuskokwim
Health Corporation headquartered in Bethel. YKHCs'
project request was recently rated number one in the
nation by the federal government out of thirty seven
other competitive JVCP applications.
YKHC is currently working with the federal government
to renovate the existing Bethel hospital and construct
a new primary care clinic costing approximately $250
million. YKHC will pay for the construction. Federal
standards call for Congress to fund approximately 200
new staff in relation to the cost of a construction
project, which will also provide an economic
opportunity in human capital for the region.
The JVCP will cost the State of Alaska no additional
monies, and in fact the improvements are expected to
save State funds. The JVCP will bring approximately
200 new permanent positions into Bethel region, paid
for by the federal government. The JVCP will create
hundreds of new construction jobs in Bethel and
elsewhere, paid for by YKHC. The JVCP will improve
access and quality of care for the residents of the
entire Yukon-Kuskokwim Delta.
Construction in rural Alaska is expensive and
therefore affordable financing becomes extremely
important for large rural JVCP projects. For this
large rural project to be affordable for YKHC, the low
interest rates obtainable by the Bond Bank is
necessary.
Representative Herron explained that the legislation would
allow YKHC, a regional health organization, to have access
to AMBB. The legislation did not allow for any preferential
treatment of YKHC over any other entity that had access to
the bond bank. He reported that the project included the
rehabilitation of a hospital and new construction of a
primary care facility totaling $250 million. The project
would provide over 200 full-time jobs. The Indian Health
Service indicated that it would negotiate a 20-year
staffing package. He announced that two staff from YKHC
were available for questions from committee members.
Co-Chair Thompson reviewed the available testifiers and
asked if there were any questions from committee members.
Representative Wilson asked why YKHC was pursuing financing
from AMBB as opposed to other financing options.
Representative Herron deferred to Mr. Winkelman.
1:37:35 PM
DAN WINKELMAN, CEO/PRESIDENT, YUKON-KUSKOKWIM HEALTH
CORPORATION, introduced himself and indicated he was
speaking in favor of HB 101.
Representative Wilson restated her question as to the
pursuit of municipal bond bank funding.
Mr. Winkelman noted that both of the hospitals in Nome and
in Barrow were paid for with IHS dollars. He relayed that
currently there was a wait list of projects equaling over
$1 billion; IHS had an extensive queue of projects, of
which YKHC was not listed. The queue list had to be opened
by congress in order for projects to be added. He relayed
that only a small list of projects was available to choose
from at present. It was not expected that the list would be
opened to further projects anytime in the near future. He
suspected that the wait time for a new hospital in Bethel
would extend beyond his lifetime.
1:39:00 PM
Representative Gattis asked why the legislature would limit
a change in statute to just YKHC. Mr. Winkelman explained
that YKHC, as a regional health organization, was
significantly different than other organizations within
rural Alaska. He reported that YKHC had third-party monies
that other organizations did not have. He argued that
access to affordable capital for large projects was limited
due to being off of the road system. Yukon-Kuskokwim Health
Corporation was looking for the most affordable money
possible. Lower-cost financing with a bond bank would
equate to a savings of approximately $100 million in
interest monies. The rates were kept low making borrowing
more affordable.
Representative Gattis understood that the option was
optimal for YKHC. However, she wondered about broadening
the legislation to include other entities.
Representative Munoz wondered if YKHC, the primary care
center, and the regional hospital were all part of the same
entity. Mr. Winkelman replied that the primary care center
was part of YKHC, but the hospital was federally owned. He
reported working with Congress to have the hospital and the
corresponding land ownership transferred to YKHC. He
relayed that JVCP required the regional health organization
to own the site.
Representative Munoz asked if the YKHC had any outstanding
debt. Mr. Winkelman responded in the affirmative. He
indicated that YKHC had incurred debt for a new
administrative building constructed in the late 1990s. The
municipalities of St. Mary's and Emmonak were the conduits
used to access AMBB. He informed the committee that there
was approximately $9 million of associated debt on the note
and added that YKHC had recently refinanced the loan with
its banker.
1:42:58 PM
Representative Munoz asked if Mr. Winkelman was aware of
any other health organization expressing interest in
accessing bond bank funds. Mr. Winkelman responded that
there were other organizations such as Norton Sound Health
Corporation (NSHC) that were interested in AMBB funding. He
detailed that NSHC was seeking monies for clinics in
disrepair. He reported that the Denali Commission was no
longer funding new construction of village clinics in rural
Alaska. He confirmed that other entities were in need of
affordable financing.
Vice-Chair Saddler asked Mr. Winkelman to provide
historical information about YKHC and its function. He
wanted to better understand the roll of YKHC. Mr. Winkelman
specified that YKHC was founded in 1969 as a 501(C)3
nonprofit organization; leaders, doctors, and nurses
started the company in order to have a say about how health
care was going to be delivered in the region. Prior to
YKHC's inception, health care in Alaska was only offered
through IHS. In the beginning, YKHC contracted with IHS to
provide a community health care program and dental and
optometry services. In time, the entity elevated to mature
contractor status. Yukon-Kuskokwim Health Corporation
entered into negotiations with the regional hospital
eventually taking over the entire health care delivery
system previously run by IHS. He reported that YKHC had 5
subregional clinics, ran 41 village clinics, and served 30
residents in the Yukon-Kuskokwim delta.
Vice-Chair Saddler asked about Mr. Winkelman's reference to
"took over." He recapped that YKHC provided IHS with a
service, IHS provided compensation to YKHC, and YKHC
provided health care services to patients in the region. He
wanted to know if YKHC was associated in any way with the
regional native corporation. Mr. Winkelman responded that
YKHC was independent of the regional native corporation. He
detailed that the organization had 21 board members that
were elected to serve 5-year terms. It was required by the
Indian Self-Determination Act to have a contract with IHS.
1:46:51 PM
Vice-Chair Saddler wondered about the governance system
prior to the acknowledgement of tribes in Alaska. He
assumed that there were 21 different tribes; 1 member per
tribe was elected to the board. Mr. Winkelman explained
that, prior to recognition, Alaskan tribes got together and
elected the tribal councils that existed at the time. The
process was basically the same as the current system in
place.
Vice-Chair Saddler asked if the people had considered
themselves members of a tribe at the time. Mr. Winkelman
responded affirmatively.
Vice-Chair Saddler asked Mr. Winkelman to explain about
previous financing. Mr. Winkelman explained that JVCP was a
program in which IHS agreed to lease and staff new health
care facilities that were built by regional health
organizations. Yukon-Kuskokwim Health Center was one of 37
applicants from around the country to apply. He detailed
that the program was started in 1992 with the first pilot
project. There was a long list of awardees, four of which
were operating in Alaska. The facilities included; Dena'ina
Wellness Center in Kenai, South Central Foundation in the
Mat-Su valley [Wasilla], The Tanana Chief's facility [Chief
Andrew Isaac Health Care Center] in Fairbanks, and Copper
River Native Association Health Center [in Glennallen]. He
reported that the four facilities had been running
successfully.
1:48:59 PM
Vice-Chair Saddler wanted to confirm that if a facility was
constructed the federal government would fund it and staff
it. He also asked if YKHC was seeking funds to build the
facility.
Mr. Winkelman responded that HB 101 only gave YKHC the
authority to apply for funding with AMBB. It was up to the
bond bank to determine YKHC's eligibility for affordable
financing. Yukon-Kuskokwim Health Center was also looking
to diversify the state's risk by working with the United
States Department of Agriculture and other financers to
diversify the project's financing structure due to its
large size.
Vice-Chair Saddler wondered if the project would create any
obligations on the part of the state if the bill passed,
YKHC was granted funding from the bond bank, and a facility
was built. Mr. Winkelman responded that he was not aware of
any obligations on the part of the state. He commented that
Mr. Mitchell would be able to better respond to Vice-Chair
Saddler's question.
Co-Chair Thompson asked about YKHC's bonding through the
cities of St. Mary's and Emmonak. He wanted to know the
size of the bond and the bond balance. Mr. Winkelman
reported that YKHC used Emmonak's and St. Marys' bonding
ability in the late 1990s. He estimated the original
bonding at $20 million. The current balance, recently
refinanced at a better rate, was approximately $9 million.
1:51:38 PM
Representative Guttenberg stated that he represented the
cities of Emmonak and St. Mary's and that both had bonding
capacity for regional health clinics. He wondered if Bethel
had the capacity for the size of bond that was needed. Mr.
Winkelman responded that YKHC currently had indirect access
to the bond bank through the municipality of Bethel. He
relayed that Bethel was adverse to debt accumulation which
explained the reason for YKHC bonding via the
municipalities of Emmonak and St. Mary's in the 1990s. He
believed there was a bonding cap and that the size of the
current project was beyond Bethel's bonding capacity.
Mr. Winkelman continued to provide reasons he supported the
bill including the benefits of economic development,
improved access to health care, quality of care, and job
opportunities. He reported that a $30 million staffing
package was being considered along with a yearly
maintenance and improvement fund of $10 million. He
explained that he had been aggressive in pursuing JVCP
because he was unable to satisfy the health care needs in
Bethel. He pointed out that Bethel's current hospital was
limited by size and age. He asserted that JVCP was the only
way to improve the services to meet the significant needs
of the region. He reiterated the success of JVCP in other
areas of Alaska. He felt that the bill provided a means to
improve health care for 30 thousand residents in the Yukon-
Kuskokwim delta.
1:54:26 PM
Representative Guttenberg remarked that Fairbanks,
Anchorage, Juneau, St. Mary's, and Emmonak all had the
ability to access municipal bonds. He suggested that Bethel
did not. He asked about Norton Sound and whether Nome had
potential bonding capacity. Mr. Winkelman replied that he
was talking about Nome and Barrow and furthered that it was
not a bonding issue with either community. He explained
that they were already in IHS's queue for new construction
and that the Nome Hospital was very old. The issue for
Bethel was that it would not have the opportunity to expand
its 30-year old hospital or construct a new facility
through IHS because of Congress' backlog in the funding of
new facilities for IHS. He did not believe Bethel would
receive any funding. He clarified that Bethel had bonding
capacity but in past years had not been willing to
accumulate additional debt. He understood that AMBB wanted
the legislature to weigh in due to the scope of YKHC's
project.
Representative Guttenberg referenced page 2, line 6,
Section 6 of HB 101 [many municipalities provide for or
partner with nonprofit organizations to provide for
delivery of health care]. He wanted to know if Legislative
Legal Services thought line 6 was necessary.
Representative Herron remarked that it was obvious that
municipalities regularly partnered with nonprofit
organizations. He reported that Bethel was presented with
three opportunities to go to the bond bank for funding
facilities in its community. The first was for an
administrative building. The second opportunity came about
when the legislature set up a mechanism to build Goose
Creek Correctional Center, rehabilitate the Fairbanks jail,
and rehabilitate the Yukon-Kuskokwim Correctional Center in
Bethel. It was suggested that the municipalities be the
conduits, which Bethel opted against. The third time the
City of Bethel went to the bond bank was to fund the
construction of the court house. Eventually the stated
leased the building enabling payments to the bond bank.
1:58:19 PM
Representative Kawasaki wanted clarity about how IHS' JVCP
worked. He understood that the joint venture did not pay
for the cost of construction or implementation. He asked if
the venture paid for the staff following construction and
for the debt.
Mr. Winkelman confirmed that Representative Kawasaki was
correct. He explained that the regional health organization
would be responsible for building the new facility with its
own funds. After a facility was completed IHS would staff
the facility based on formulas that considered building
size, population, and growth rates. The funds that would be
used to pay off indebtedness would be the organization's
funds or third party funds (Medicaid, Medicare, private
insurance, and self-pay funds) amounting to about $70
million per year. A portion of the money would be used to
make monthly payments to the bond bank.
2:00:12 PM
Representative Kawasaki asked if a specific type of
construction or a specific size was required under IHS'
JVCP. He wondered if the regional health organization would
qualify for the project if the legislature did not support
the entire amount being requested and a smaller facility
was built. Mr. Winkelman relayed that the new facility had
to be a minimum of 400 thousand square feet. In order to
fulfill the square footage mandate the Yukon-Kuskokwim
Health Center's plan was to renovate the existing hospital
which counted towards the required square footage and to
build a new 130 thousand square foot facility located
adjacent to the hospital. The primary care clinics would be
moved out of the hospital and into the new adjacent
building. He furthered that the dental, optometry, and
behavioral health units would move into the new facility.
The inpatient unit would be moved to the same location as
the clinics and the emergency room would be expanded. He
claimed that by remodeling the hospital expenses would
remain reasonable and keep the amount of new square footage
down.
Mr. Winkelman also reported that there might be
opportunities to make the facility smaller. However, if the
facility were smaller, so would the IHS staffing package.
Representative Kawasaki asked if IHS also paid for
maintenance and operation for the life of the loan. Mr.
Winkelman responded that in addition to staffing dollars,
IHS also provided maintenance and improvement funds
including contract support dollars. He reported that $30
million dollars was slated for the Yukon-Kuskokwim Health
Center's proposal. He estimated upwards of $20 million to
$30 million in additional dollars which would almost double
the existing contract that it had with IHS. Currently YKHC
had a contract with IHS in which it received $71 million
annually to run its program.
Representative Kawasaki referred to the 30-page proposal
and the financing package contained in the last few pages.
He indicated that it stated that YKHC was trying to get
$250 million from the municipal bond bank. He wanted to
know the rating YKHC received was contingent on the passage
of the bill. Mr. Winkelman asserted that the passage of the
bill had nothing to do with the rating. He also specified
that YKHC was not seeking $250 million from the bond bank.
The amount was considerably less. In the bill the amount
was capped at $250 million. Yukon-Kuskokwim Health Center
had its own monies to contribute and was working with USDA
to provide a substantial amount of funding. He anticipated
that YKHC would be seeking less than $200 million from the
municipal bond bank.
2:04:30 PM
Representative Gara placed on record that he had previously
represented YKHC about twenty years prior to recover
significant monies from IHS. He confirmed that he no longer
represented YKHC and did not think there was any kind of
conflict of interest.
Representative Gara believed there was a future in lowering
medical costs and expanding access with clinics such as
what YKHC was proposing. He surmised that the more that
people were served in hospitals, the more that medical
costs would rise. He commented that there were clinics that
were not affiliated with regional health organizations. He
wanted to know if HB 101 could be expanded to include non-
native health clinics.
Representative Herron deferred to Deven Mitchell.
2:07:08 PM
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, informed the
committee that it would be an additional policy decision
whether to allow other nonprofits to have access to the
bond bank. He divulged that if Bethel were to apply on a
conduit basis to AMBB for the size of loan being suggested
it would be very difficult to approve due to the magnitude
and nature of the project. He suggested that if AMBB was
more knowledgeable about the non-native health care
industry he would be more than willing to have further
discussions about an addition to AMBB's mission. He relayed
that currently the bond bank had a significant footprint in
the health care industry in communities that owned their
own hospitals. He provided some examples such as Bartlett
Regional Hospital in Juneau, Ketchikan's Hospital, Valdez's
hospital, Central Kenai Peninsula Hospital in Kenai, South
Peninsula Hospital in Homer, the care facility in Seward,
and a facility in Kodiak. He pointed out that the bond bank
had funded a variety of facilities in the state that were
owned by the community and often operated by a nonprofit.
2:09:04 PM
Representative Gara asked if nonprofit clinics were
currently eligible for bond bank assistance. Mr. Mitchell
confirmed that nonprofit clinics were eligible for AMBB
assistance. He relayed that Juneau's Wildflower Court, a
nonprofit long-term care facility, obtained a loan through
the bond bank. The facility shared a location and a mission
with Bartlett Regional Hospital. Many of the hospital's
major surgery patients were released to Wildflower Court
for convalescence. He explained that the facility sat on
land owned by the City and Borough of Juneau (CBJ) and was
previously bonded on a conduit basis by CBJ. He detailed
that when a nonprofit applied for financing with AMBB on a
conduit basis the credit that was evaluated was that of
only the nonprofit. In the instance of Wildflower Court,
before refinancing through AMBB, its credit was a non-
investment grade credit with an interest rate of close to 7
percent. He furthered that by refinancing through the bond
bank Wildflower Court saw a present value savings of $5
million. However, in order for Wildflower Court to secure
AMBB's financing, CBJ had to incur a $12 million contingent
liability. The bond bank did not have to stress as much
with CBJ behind the loan on a moral obligation basis. He
continued that in a similar instance moral obligation was
more than acceptable from a bond bank perspective.
Representative Gara asked about potential financial risks
to AMBB or to YKHC if the legislation was expanded to
include nonprofit health clinics. Mr. Mitchell responded
that broadening the issue could jeopardize the expansion
proposed in the current form of the bill. He stated that
health care was not generally viewed favorably by capital
markets due to a variety of health care options available
in the continental United States. He suggested that if a
patient was not comfortable with one health care facility
he or she could drive down the road to the next facility.
He pointed out that it was possible to do the same thing in
Alaska, only with a little less ease (particularly off the
road system). He stated that what Representative Gara was
suggesting was something the bond bank might be able to
manage but would have to exercise care. He relayed that
AMBB had not had any defaults since inception. He wanted to
maintain a clear record and opined that expansion would
make that more difficult.
2:13:23 PM
Co-Chair Thompson relayed that the bond bank was intended
for municipalities. He understood that municipalities had
used their authority for other health clinics but had also
assumed the responsibility for the loan application and
payment. He acknowledged that in the previous year the
legislature had expanded the authority to include the
university. He wondered if including other nonprofit
consortiums would result in any unintended consequences.
Mr. Mitchell replied that AMBB's board of directors had
discussed the potential outcomes of HB 101 and supported
the undertaking. He reiterated asking the question, "Is
this a good policy decision to have these partnerships that
we are discussing?" He referred to Section 2 of the bill
requiring the commissioner of DHSS to provide an opinion on
behalf of the state about its financial interest in a
proposed project and to weigh in about whether a specific
project would be beneficial to regional health care. He
believed that, from a policy prospective, the bill was a
good idea. He conveyed that it was his job to make sure it
was a good idea from a credit perspective.
Co-Chair Thompson asked if there would be any potential
financial effects on municipalities if the bonding capacity
for regional health care facilities were expanded up to
$250 million.
Mr. Mitchell surmised that there would not be any financial
impacts to municipalities. He reiterated that the intent of
AMBB's board was to ensure that the program was
administered properly. He reported that there were some
costs the bond bank subsidized for municipalities and
conversely, other costs were not. He suggested that when
the program was 100 percent supported by fees collected by
users, participating municipalities experienced additional
savings and the bank's ability to complete its work was not
impacted.
Mr. Mitchell relayed that AMBB had a strategy for its
capital reserve requirement. He reported that the bond bank
was statutorily required to fund a debt service reserve
when it sold bonds. He detailed that funding a debt service
reserve was expensive in the current financial environment
given that the yield curve went up. He explained that
financial investors were at the short end of the yield
curve, which, on the taxable side, was not where it had
been in the past. He elaborated that treasuries could only
yield 1 percent in a two-year time frame. Therefore, with a
tax exempt borrowing cost of 3.75 or 4 percent for a 20-
year period, it would cost AMBB to have the security
feature. He noted that AMBB was considering various
strategies to deal with the issue; there was no intention
that it would take away from the bank's ability to fulfill
its core mission.
Co-Chair Thompson wondered if public financing competed
with any private sector financing.
He relayed that there had been discussion about the tribe
using a municipal conduit to access the bond bank program;
however, the tribe had ultimately chosen to obtain
financing from a commercial bank. He surmised that if the
program had been modified it would have been easier for the
tribe to access the bond bank, which would have most likely
resulted in a lower cost of capital. He noted that if a
bank such as Wells Fargo was going to provide a commercial
loan, it would be just as easy for AMBB to issue its bonds
using Wells Fargo as an underwriter. He stated that there
were other ways businesses benefitted from financial
activity; there were different avenues.
2:18:53 PM
Vice-Chair Saddler asked Mr. Mitchell if the legislation
would impose any implicit hierarchy on the bond bank. He
further asked if the legislation would detract from AMBB's
primary mission. Mr. Mitchell indicated that the board
would have to make a decision about hierarchy. He clarified
that his statements reflected his understanding of how the
current board would pursue the new activity. He stated that
there was no explicit hierarchy of priority.
Vice-Chair Saddler referred to Section 2 of the bill
requiring feedback from the commissioner of DHSS. He
wondered about the form of state financial benefit and the
form of feedback that would be provided by the
commissioner. Mr. Mitchell responded that he did not have
answers to Vice-Chair Saddler's questions.
Vice-Chair Saddler suggested further clarification be
provided by the sponsor of the bill. He also wondered about
whether expanding the mission of the bond bank would dilute
its ability to carry out its other mission. Additionally,
he asked Mr. Mitchell if he was aware of any other regional
health corporations making application to the bond bank.
Mr. Mitchell conveyed that Norton Sound Health Corporation
had expressed interest. He offered that although the bill
would provide a potential opportunity for other entities to
apply to the bond bank, every entity would be subject to
providing documentation such as audited financial
statements to demonstrate eligibility.
Co-Chair Thompson mentioned that in the previous year the
legislature expanded the municipal bond bank's authority
from $1 billion to $1.5 billion. He wondered if lending
$250 million for the YKHC project would interfere with
servicing municipalities. Mr. Mitchell answered that the
legislation created a separate allocation. In addition to
the $1.5 billion there would be $87.5 million allocation
specific to the university and $250 million allocated to
YKHC's project.
Co-Chair Thompson clarified that it would be in addition to
the $1.5 billion. Mr. Mitchell answered affirmatively.
2:22:44 PM
Vice-Chair Saddler asked if the approval of the legislation
and the execution of the financing agreement created any
state funding obligation other than through the municipal
bond bank authority. Mr. Mitchell responded that in the
event YKHC failed and defaulted on its loan the state would
be asked to replenish the reserve to the extent that it was
drawn upon. If there was a failure to replenish the reserve
the State of Alaska's credit would likely be downgraded.
Vice-Chair Saddler wondered if the State of Alaska was
ultimately responsible for YKHC's loan from the bond bank.
Mr. Mitchell stressed that the state would not be held
liable to repay the loan; however, the state's credit would
be downgraded.
Vice-Chair Saddler asked if YKHC would be building the
facilities if JVCP was not available. Mr. Winkelman stated
that YKHC would not be able to pursue the project without
JVCP. The IHS dollars for staffing, maintenance and
contract costs were necessary for the project to move
forward.
Vice-Chair Saddler understood YKHC's needs. He expressed
concerns that the state would be approached to help if the
federal government was not able to provide the lease
payments and to pay for staff.
2:25:04 PM
Representative Pruitt asked Mr. Mitchell what the bond bank
would be looking for from YKHC in terms of security to
proceed with the bonding.
Mr. Mitchell responded that it would be determined in the
future based on an interactive process. In general, the
bond bank would approach it as it would approach any
revenue bond loan. In a revenue bond situation an entity
was required to covenant or promise to cover itself in a
certain fashion. The bond bank expected a borrower to fund
at debt service reserve level. In the event there were
operational deficiencies the bank would access those funds
first, prior to a draw on the bond bank's reserve fund. A
rate covenant that required the borrower to over-collect
net revenue to debt service was included in the loan terms.
He cited the example of 1.25 times. If the entity failed to
over-collect they would be required to notify the bond bank
of the failure and to take actions to rectify the situation
and meet the collection requirement in the future year.
Mr. Mitchell explained that on a historical basis the
borrower provided financial statements confirming its
ability to pay debt service. If the entity failed, the bond
bank would have the perspective analysis undertaken to
ensure that in the future, given the operational changes,
there would be sufficient revenue. It was normal to have a
revenue system developing a new infrastructure. The bond
bank discussed requiring certain payments go directly to a
trustee rather than the general fund of the health
consortium, the source of disbursements to pay the debt
service. He offered that the details concerning payments
would be reviewed to ensure debt repayment.
2:28:43 PM
Representative Pruitt asked if the joint venture would be
part of the conversation. Mr. Mitchell replied, "Yes."
Representative Pruitt wanted to better understand why YKHC
could not work with the City of Bethel to secure bonding.
He was unsure of the amount of bonding available to Bethel
or Bethel's bonding limitations. He wondered if the bond
bank looked at the corporation's ability to pay or solely
at Bethel's ability to pay the bond. Mr. Mitchell replied
that the loan amount far exceeded Bethel's debt capacity.
He relayed that the bond bank had recently examined
Bethel's debt capacity for a pool project. The bank
concluded that Bethel's revenue situation with an
anticipated sales tax increase only supported about $20
million in general obligation bonds. He did not ascribe to
making $250 million available to Bethel, a lower-rated
community, without a policy decision that determined the
appropriateness of the partnership.
Representative Pruitt asked whether the corporation's
ability to pay would be considered in the case of a bond
being issued to the City of Bethel or if it would only be
based on the city's revenue. Mr. Mitchell commented that
underlying credit would be taken into account. He relayed
that the bond bank's largest borrower was the City and
Borough of Sitka. He reported that Sitka had about $150
million outstanding through the bond bank program made up
of a variety of credits. Sitka's full debt portfolio was
owned by the bond bank. He suggested that it would be
challenging for AMBB to issue a $250 million loan for a
health care business without additional direction from the
legislature. He reiterated that he would be uncomfortable
making a magnitude change without the direction of policy
makers.
Representative Pruitt surmised that the legislation before
the committee included a policy change. He asked about
YKHC's ability to pay down debt. He wanted to know if the
funds supplied by IHS would be used to repay the bond
obligation.
2:34:13 PM
Mr. Winkelman responded in the negative. He relayed that
IHS made it explicitly clear that staffing dollars were not
to be used for debt repayments. Yukon-Kuskokwim Health
Corporation planned to use funds from revenues paid for
through Medicaid, Medicare, private insurance, and self-pay
funds totaling $70 million annually.
Representative Pruitt wanted to fully understand how IHS
staffing dollars were to be spent. He asked if the funds
could be used to pay for the facility lease or if they were
to be used strictly for staffing expenses. Mr. Winkelman
confirmed that the IHS staffing dollars only paid for
staffing needs. He offered that IHS provided the staffing
package and the contract support cost dollars including the
maintenance and improvement funds.
Representative Pruitt mentioned a letter received from DHSS
indicating that the staffing package was based on
appropriations. He wondered what would happen if the
federal government decided not to appropriate funds. He
wanted to know how that would impact YKHC and how it would
impact the corporation's ability to pay its bond
obligation. Mr. Winkelman explained that if the federal
government did not appropriate funds, YHKC's ability to pay
would be impacted. He offered that since 1992 there had
never been a problem with appropriations. He also noted
that YKHC had over 2 years' worth of reserves for the
project in case there were issues. He did not perceive a
funding issue.
Co-Chair Thompson mentioned that Renee Gayhart from DHSS
was available on the phone for questions.
Representative Wilson suggested that the legislation was
not limited to YKHC but was applicable to other similar
organizations. Mr. Mitchell replied that Representative
Wilson was correct.
Representative Wilson asked if the change that included the
university was the first change to increase the mission of
the bond bank.
2:37:40 PM
Mr. Mitchell responded that the bond bank statute had been
changed a number of times over the years. Initially, the
bond bank was only a general obligation program, then
revenue bonds and the ability to lend to joint insurance
associations were added. More recently, he reported seeing
expanded authority to borrow for the bond bank. The program
was relatively successful with financing community
projects, and saving money. The current legislation was an
additional step.
Representative Wilson asked if there were other
organizations or groups that had approached Mr. Mitchell
about bond obligations. If not, she wondered if he
anticipated being called upon. Mr. Mitchell answered that
he had been approached by a joint action agency. He also
stated that the statutes had changed so that the bank could
lend to port authorities. The joint action agency was like
a port authority in which a number of communities came
together for a common goal. He continued that there was a
joint action committee that administered the remnants of
the Four Damn Pool that was talking about participating in
AMBB's program which he felt would more likely fit into the
bond bank program criteria.
Representative Wilson asked why the legislature did not
give the AMBB the authority to lend money based on market
knowledge and other expertise. She wondered why it was
necessary for the legislature to decide. Mr. Mitchell
responded that he liked the ceiling currently in place. He
liked that someone was verifying what the bank was doing
rather than confirming activities in the field. He believed
that the process of legislation was valid and that making a
determination as a group was important for discussion
purposes. He felt that the opportunity to explore options
was positive. He believed that the core policy question was
whether the state should partner with regional health
corporations to make a project more affordable. He saw the
opportunity for efficiencies with the bond bank and
municipalities.
Representative Wilson asked why YKHC did not apply through
Alaska Industrial Development and Export Authority (AIDEA)
for funding. Mr. Mitchell understood that YKHC was working
with AIDEA. He mentioned that there were certain
limitations to AIDEA and that there were times that AIDEA
requested changes in legislation for certain types of
financing.
Representative Wilson expressed her concern with opening
the door to other organizations to access AMBB. She
emphasized the success of the bank and was apprehensive
about it being compromised. She commented that she would
ask additional questions as she better understood the
program.
2:43:29 PM
Representative Kawasaki asked about the payment in place
and about over collection. He wondered if YKHC had the
ability to pay and could meet revenue requirements. Mr.
Winkelman expressed confidence in YKHC's ability to meet
its debt obligation with the bond bank. He reported the
success of approximately twenty similar IHS joint venture
projects contending that the reason for their success was
due to the federal staffing dollars.
Representative Kawasaki asked for clarity regarding the
term "over collection." Mr. Mitchell explained that the
term was in reference to a coverage covenant. He specified
that net revenue should not equal debt service and was
considered risky. He suggested that if anything went wrong
the organization would be deficient. Borrowers were
required to over collect as a condition of the loan as a
buffer for debt service.
Representative Kawasaki asked for reconfirmation that the
health corporation had the necessary funds. He commented
that the corporation had been doing very well with its
margins. Mr. Winkelman stated that YKHC's financials were
very strong. He reported that he was new to his position.
2:46:21 PM
Mr. Mitchell had one point of clarification. He stated that
depreciation was taken after coverage.
Representative Kawasaki asked about the municipal bond
bank. He referred to Alaska Statute 44. He stated that the
legislature had added a couple of things including the
power plant in Section 5 of the bill. He also referred to
Section 4 dealing with the retirement system. He wondered
if the statute was dealing with the Public Employees'
Retirement System (PERS) change in 2008. Mr. Mitchell
responded that Representative Kawasaki was correct. He
elaborated that it was at the same time that Alaska Housing
Finance Corporation (AHFC) received authority to issue
pension obligation bonds and created the pension obligation
bond corporation. The bond bank was intended to be
available for municipalities that wanted to issue pension
obligation bonds. However, no municipalities expressed
interest.
Representative Kawasaki stated that he had reviewed AMBB's
40-year history of providing financing for capital
improvements in communities. Projects included schools,
water sewers, public buildings, and docks. He relayed that
smaller communities were at a disadvantage financially. He
suggested that the bond bank be allowed to operate freely
rather than being confined to doing very specific things as
identified in statute. He relayed that there were only 5
sections in the legislative finding. Mr. Mitchell responded
that he preferred the boundaries set in statute. He
indicated that there was some confusion within the statutes
because of references to municipalities, the Alaska
Municipal League (AML), and political subdivisions. He
suggested including municipalities and AML within the
category of political subdivisions to alleviate confusion.
He reiterated that he was not in favor of allowing the bond
bank to act without parameters.
Representative Kawasaki referenced the University of Alaska
combined heat and power bond which added $87.5 million to
the previous year's budget. He commented that the total
limit of the outstanding bonds was increased by $600
million. At the time it appeared that the outstanding notes
were approximately $924 million requiring the addition of
$600 million to the limit. He wanted to know if the
increased limit was necessary in order to maintain a
specific credit rating. Mr. Mitchell responded in the
negative. He explained that it was due to the University's
ability to issue debt based on its current credit rating.
The University's ability to leverage its revenues was
perceived to be limited to a certain amount. In other
words, the University had a certain amount it believed it
could obtain in the capital budget and needed a backfill of
funds. It turned to the bond bank.
2:50:42 PM
Representative Guttenberg wanted to confirm that the bonds
for the YKHC project would not be issued until all of the
requirements were met, even with a policy change. Mr.
Mitchell confirmed Representative Guttenberg's assumption.
He elaborated that the bond bank had a multi-tiered process
for evaluating an applicant's credit. The bar was lowered
for municipalities that had voter approval through the
initiative process to issue general obligation debt. He
detailed the evaluation process. He explained that once he
reviewed the application he turned it over to an external
financial advisor for review. The external financial
advisor completed a written evaluation that was submitted
to the board of directors. The board of directors evaluated
the report and the credit. Under certain circumstances
board members encouraged him to take additional measures of
protection on specific loans. He asserted that the review
process was thorough.
2:53:31 PM
Vice-Chair Saddler referenced page 4, line 10. He suggested
omitting the word, "regional." He assumed that by doing so
it would open up a larger pool of entities that could
potentially borrow from the bond bank. He appreciated Mr.
Mitchell's assurance that the board made mindful decisions
and would choose among the different borrowing capacities
rightly. He wanted to know if IHS imposed any limitations
on providing services to non-tribal members. Mr. Winkelman
responded that because YKHC was the largest service
provider within the region it served everyone that came
through its doors. He believed that most regional health
organizations in rural Alaska had an open door policy.
Vice-Chair Saddler remarked that all IHS beneficiaries
received services paid at 100 percent. He asked about how
non-beneficiaries paid for services and wondered if it was
through Medicaid, Medicare, private insurance, and self-
pay. Mr. Winkelman stated that Vice-Chair Saddler was
correct.
Representative Herron emphasized that anyone could use the
facility. He informed the committee that when he served on
the board of directors for the Lower Kuskokwim School
District, the district took the position that it did not
have to pay for insurance claims for its native employees.
However, it was disputed in court and the school district
lost.
Co-Chair Thompson asked about whether YKHC would receive an
unfair advantage in the marketplace over other community
health clinics due to having a low interest loan. Mr.
Winkelman answered in the negative. He mentioned that there
was one other community health clinic located in Bethel,
Bethel Family Clinic. He did not feel that YKHC would be
given an unfair advantage. He was not aware of Bethel
Family Clinic wanting or having the ability to expand. He
knew of only one other provider in Bethel, a dentist who
practiced part-time. He reiterated that YKHC was the only
health care provider for the 30 thousand residents in the
Yukon-Kuskokwim delta especially in the villages.
2:57:59 PM
Co-Chair Thompson expressed concerns about finding medical
staff. He alleged that previously Fairbanks, Anchorage, and
other large population centers had problems finding
necessary medical staff. He wanted to understand how YKHC
intended to attract providers. Mr. Winkelman acknowledged
that finding medical staff was extremely difficult. He
indicated that he was using over ten recruiting firms
currently, in addition to in-house recruiting, to find
physicians. He relayed that the hospital was rebuilding its
physician base. He reported that it took about one year on
average to recruit one physician. Yukon-Kuskokwim Health
Corporation searched the nation with the help of the ten
recruitment firms offering incentives such as loan
repayment. He relayed that the corporation's plan included
phasing in services based on being able to recruit staff.
Once YKHC obtained financing it would begin recruiting for
additional positions.
Representative Munoz referred to the bonding authority
extended to the university and how it related to a specific
project. She wondered if Mr. Mitchell had an opinion about
tailoring the bill to a certain project. She asked if it
would be beneficial and whether he liked the general idea.
Mr. Mitchell responded that the university's authorization
was for and limited to power and/or heat projects for the
university. He claimed that it would be simpler to have the
bill specific to YKHC's project. However, it would
potentially cause concerns about creating a slippery slope.
He believed there were legal reasons that the bill would
have to be carefully crafted identifying some sort of
criteria embedded in the legislation. It could not be
limited to YKHC.
3:01:20 PM
Representative Gattis asked Mr. Winkelman about attracting
physicians. She admitted that the Washington, Wyoming,
Alaska, Montana, and Idaho Regional Medical Education
Program (WWAMI) had received a significant amount of
attention in recent times. She wondered if Alaska was
better off keeping the WWAMI program and possibly expanding
it to attract physicians. She relayed that recruitment was
a national problem. Mr. Winkelman opined that the WWAMI
program was a great and needed program. He claimed that
there was a national shortage of physicians. He fully
supported the WWAMI program and a great benefit to the
State of Alaska. The issue was not limited to rural Alaska
but was a problem throughout the state.
Representative Gattis asked if it was specifically an
Alaska issue or if the problem was a nation-wide concern.
Mr. Winkelman indicated that the issue was felt nation-
wide, but more acutely in Alaska particularly in rural
areas.
Representative Pruitt asked Mr. Mitchell if he thought the
name of the bank, the Alaska Municipal Bond Bank, should
remain the same if the bill were to pass. He wondered if
requests had been received from other entities besides
municipalities to join in the lending pool. He referenced
the university that was added to the bond bank's authority
the previous year, and the potential to add regional health
corporations. He wondered about the interest of other
entities seeking opportunities. He wanted to better
understand the future discussion about expansion beyond the
mission of the bond bank. Mr. Mitchell believed that an
entity could have a name and conduct business beyond just
the name's implication. However, there were a number of
other pooled programs in the United States that called
themselves infrastructure banks or had other less specific
titles.
Representative Pruitt wanted to understand what the
legislature could, would, and might expect in the future.
He wanted to know who had approached the bond bank. He
wanted to know the ramifications and discussions that he
should expect to hear in respect to the utilization of the
bond bank. Mr. Mitchell indicated that he was not only the
executive director of the bond bank but he was also the
debt manager for the State of Alaska. He discussed
different types of financing on and off throughout the
year. He reported that he had not had any other group come
forward asking for access to the program. He supposed that
based on the bond bank's tax-exempt financing, other
nonprofit organizations currently borrowing money on a
conduit basis through a municipality would be attracted to
the program. In Alaska a nonprofit had to borrow money
through a municipality in order to access the capital
market on a tax-exempt basis. He surmised that there could
be some interested group but he was not aware of one.
3:06:48 PM
Representative Pruitt wanted to confirm that there were
other entities that could potentially become interested in
the bond bank program. He used Providence Hospital as an
example of an entity that might approach the bond bank for
funding. He wondered if it would be a policy call to make
in the future. Mr. Mitchell thought Representative Pruitt
answered his own question.
Representative Kawasaki asked Mr. Winkelman about the last
page of the proposal [page 29, Yukon-Kuskokwim Health
Corporation 2014 JVCP Application]. He noted a specific
timeline to get from point "A" to point "B" and that there
were many unknowns at present dealing with financing. He
wanted him to review the timeline in terms of financing and
commented that he thought it was a worthy project. Mr.
Winkelman explained that the timeline was contingent on
available financing. He remarked that YKHC was slated to
sign the joint venture agreement by summertime. He was
putting together a meeting with IHS within a month to
confirm a time. He stressed that if YKHC was unable to
secure affordable financing the timeline would be pushed
back. It was his goal to keep searching for affordable
financing and to do everything he could to ensure the
success of the project for YKHC and its financers. He
believed that if YKHC was making progress IHS would be
flexible with the timeline. The timeline on the last page
was included in YKHC's application contingent on financing.
He reiterated that he thought the timeline was somewhat
flexible.
3:10:13 PM
Representative Kawasaki referred to the second to the last
page [Page 28, Yukon-Kuskokwim Health Corporation 2014 JVCP
Application] that discussed the private financing options
and opportunities available. He was curious if the bond
bank used the information to determine the viability of the
project. He also asked if commercial lenders looked at the
ability to borrow from AMBB as an indication of a project's
credibility. Mr. Mitchell asked Representative Kawasaki to
restate his question.
Representative Kawasaki pointed out that there were a
couple of loans noted in the financial plan with the USDA
and Bureau of Indian Affairs as well as commercial loans
with Wells Fargo and CoBank. He wanted to know if the bond
bank's involvement in the process helped the other lenders
view the project as viable. He also wondered conversely if
the viability of the project would be viewed negatively if
any of the lenders were not involved. Mr. Mitchell saw it
as a benefit if there were multiple lenders for a large
scale project. Certain loans, such as USDA's rural
development authority loans, offered fixed rates for very
long term (below market at the back end, and over market at
the front end because of the yield curve). He continued
that just one rate applied to every year. If an
organization borrowed from USDA and placed the principle
amortization at the back end of the loan and borrowed from
a bond bank program on the front end of the loan, the
borrower could reduce the total cost of capital. He also
suggested that a commercial bank's interest in partnering
in a portion of the financing of a facility was an
additional confirmation of credibility.
3:13:36 PM
Co-Chair Thompson indicated that the committee was out of
time, thanked the individuals who testified, and invited
Representative Herron to make any final comments.
Representative Herron expressed his appreciation for the
questions asked by committee members and the interest in
the project. He reiterated the creditworthiness of the
project. He stressed the importance of improving the health
care delivery system in his region. He also emphasized the
potential for creating over 200 permanent jobs with the
project. He stated that he would seek out the
commissioner's approval directly.
HB 101 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson reviewed the agenda for the following
Monday.
ADJOURNMENT
3:15:14 PM
The meeting was adjourned at 3:15 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB101 Sectional Analysis.pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 101 |
| HB101 Supporting Documents - 1.25.14 YKHC Letter.pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 101 |
| HB101 Supporting Documents - 15-01-15 YKHC Presentation Graphics.pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 101 |
| HB101 Supporting Documents - YKHC Proposal (2).pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 101 |
| HB 101 Fiscal Note DOR.pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 101 |
| HB 101 - Supporting Documents - City of Bethel LTR of Support.pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 101 |
| HB 158 Fiscal Note - DOR.pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 158 |
| HB101 Sponsor Statement.pdf |
HFIN 3/26/2015 1:30:00 PM |
HB 101 |