Legislature(2009 - 2010)HOUSE FINANCE 519
03/17/2009 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB172 | |
| HB90 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 172 | TELECONFERENCED | |
| + | HB 90 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 172
"An Act relating to an investment in the education loan
fund; relating to authority for the commissioner of
revenue to enter into a bond purchase agreement and
letter of credit with the Alaska Student Loan
Corporation; and providing for an effective date."
1:39:28 PM
DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION
COMMISSION, DEPARTMENT OF EDUCATION signified that HB 172
changes a Department of Revenue statute allowing the
Commissioner of Revenue to assist the student loan
corporation with financing help over the next two years. For
the past 20 years, the Student Loan Corporation has issued
tax exempt revenue bonds in the capital market, but due to
the capital market disruption, this bill would allow them to
continue issuing bonds to offer low interest education
loans. This assistance prevents an interruption of lending
services without returning to the pre-corporation days of
coming before the legislature to ask for general fund
appropriations. The recommendation is for a three prong
strategy. The first, to provide immediate relief for the
2009 tenure, the Commissioner of Revenue would enter into an
agreement with the corporation to directly finance education
loans. The bill allows an extension of credit capped at $100
million to allow immediate use of those funds. The last time
the corporation was successfully able to issue bonds was in
2007. Last year there was sufficient available cash to
finance all the 2008-2009 loans. The total amount for the
current loan year is about $95 million, but the corporation
has suspended loan applications at this time.
1:42:36 PM
Ms. Barrans indicated that the second part of bill allows
the Commissioner of Revenue to create a method of credit
enhancement to the student loan corporation. This credit
enhancement is in the form of a liquidity facility or letter
of credit that would underwrite bonds issued in the next
year. Bonds currently attractive to investors have some form
of liquidity facility so that if the investor wants to sell
the bonds, it would be possible.
1:44:00 PM
Co-Chair Hawker asked for questions and noted that Jerry
Burnett would be coming forward to give the Department of
Revenue's position on this bill.
Representative Gara remarked that the recently passed
student loan bill, HB 109, made it impossible for young
people with no credit to get a loan. He wondered if there
was some way around that by having the Department of Revenue
use state money to finance loans so that it would not be
necessary to follow rules of credit worthiness.
Representative Gara indicated that he would welcome support
in removing the $1000 cap on the Post Secondary Education
Financial Aid program. He asked Ms. Barrans how much is the
Post Secondary Commission's total portfolio in terms of
outstanding loans. Ms. Barrans replied it was $660 million.
Representative Gara inquired about the referred to $95
million. Ms. Barrans remarked that the $95 million covered
new loans to borrowers for the 2008-2009 loan years.
Representative Gara asked if there was any way the
Department of Revenue could back loans for those people
without a credit history. Ms. Barrans remarked that depends
on the will of the legislative body since she considered the
only way for that plan to work would be if it was directly
funded by the general fund. The loan would be directly from
the State of Alaska without investor interests, but it would
require them to come before the legislature every year for
funds.
1:47:54 PM
Representative Gara inquired if the loans were once backed
by the state general fund. Ms. Barrans replied that was true
until 1988. Representative Gara asked if it would be
feasible to have a system that limited the draw on general
fund, a secondary loan for those who do not qualify under
the standards in HB 109. Ms. Barrans could not speculate on
the financial burden from one year to the next. She
suggested there were alternatives for students who do not
qualify for a supplemental education loan such as the
federal education loan program entitlement program.
1:50:05 PM
Representative Gara contended this special loan would
involve a small number of students. Ms. Barrans signified
that she was not sure which students would not qualify for
at least one of the loans. The only people denied federal
education loans are those convicted of a drug felony while
taking out federal loans or draft-age males who failed to
register. Representative Gara asked if there were income
limits. Ms. Barrans said no.
1:51:16 PM
Co-Chair Hawker interjected that the purpose of the bill is
driven by the lack of liquidity in the market and the lack
of money which would suspend operations for this year. He
stressed that timing was of the essence to stay in the
business of making loans. House Bill 172 would be a bridge
facility until the capital markets return and the program
can continue as an independent business entity. Ms. Barrans
agreed.
1:52:08 PM
Representative Austerman asked about the average yearly loan
portfolio. Ms. Barrans replied that there have been annual
double digit increases for the past few years. This is
attributed to the growth of the federally guaranteed loan
activity which borrowers enter into master promissory notes
which they continue to borrow from each year. The $95
million loaned this year is the highest volume in 18 years;
it usually ranges from $65 to $70 million a year.
Representative Austerman asked if future years will level
out. Ms. Barrans agreed the growth should level off over the
next two to three years to a $90 to $100 million loan
volume.
1:54:10 PM
Representative Kelly referred to page 2, line 3,
"…commissioner may require the corporation to secure the
investment of state money." He inquired why not insert the
word "shall" instead of "may." He then referred to page 2,
line 23-24, "…0.15 percent of the average principal
outstanding and interest covered by the bond purchase…" and
page 2, line 29, "...rate of interest not to exceed three
percent on the bonds held…" He wondered if there should be a
requirement for the security and if this set rate was a good
deal for the corporation.
1:55:37 PM
JERRY BURNETT, DEPUTY COMMISSIONER, DIVISION OF TREASURY,
DEPARTMENT OF REVENUE answered Representative Kelly's
question regarding page 2, line 3. He indicated that "may"
is a permissive statement for the corporation to secure
investments on a negotiated deal with a specific portfolio
of student loans or the general credit of the student loan
corporation. It would probably be a secured credit, but that
would be negotiated. Mr. Burnett judged using the word
"shall" instead of "may" would not harm anything in the
bill. He emphasized that the Department of Revenue would
make certain that investment grade securities were being
purchased.
1:57:19 PM
Ms. Burnett remarked that setting the rate, the 0.15 percent
fee for the credit facility, is the average cost of a credit
facility prior to the current credit meltdown. It is
intended to be affordable, not to make a profit, although
there are some costs to keep money available in a shorter
term investment portfolio. The three percent is a penalty
for the student loan in case the bond repurchases agreement
is used. The intent of the bill is for this to be a short
term program.
1:58:58 PM
Representative Kelly voiced his concern regarding three
areas he mentioned earlier, especially his hope this program
would not be permanent. Mr. Burnett agreed. Representative
Kelly reiterated his desire to use the word "shall" instead
of "may."
1:59:25 PM
Representative Crawford believed that liquidity for the
bonds contradicts the premise behind bonds. Ms. Barrans
remarked that the type of bonds issued to finance the
federally guaranteed student loans are variable rate bonds.
The investor buys bonds knowing a market exists to accept
those bonds if cash is needed. The problem in the market
today is that the bonds previously issued were auction rate
securities that did not have a liquidity facility, but
depended on a functioning market place with sufficient
buyers for sellers to unload their bonds to get cash out.
That market fell apart and has not functioned since February
2008 and there is an agreement this market will never
recover.
2:01:47 PM
Representative Crawford reiterated his confusion on who
funds the liquidity or how. Mr. Burnett replied that these
bonds are held by corporations, pension funds, and states. A
liquidity facility works so that after a period of time the
buyer puts the bonds back into the market and someone else
buys them. Under this bill, if there are no buyers, the
state would buy the bonds and then put them back into the
market. The state would be the buyer of last resort, but
this would ensure the bond holder that there was a buyer.
2:02:56 PM
Representative Crawford asked what would be the maximum
amount of exposure the state would have at any one time. Mr.
Burnett remarked that under this legislation a maximum of
$100 million would be owned directly by the state with an
exposure up to $106 million. The pool of funds used would be
the general fund and non-segregated investments. As of
January 31, 2009, this pool had $7.5 billion.
2:04:22 PM
Representative Austerman indicated that there is no sunset
on the bill except where it states a 5 year term. He
questioned if this would be a one or two 5 year terms. Mr.
Burnett understood the intent was for one 5 year term.
2:05:04 PM
Representative Gara questioned which class of student needs
this state loan if everyone, except those with criminal
records, qualifies for the federal loans. Ms. Barrans
replied that students attending a high cost program where
there is the need to borrow beyond the federal loan of
$13,000. State funds have been marketed as supplemental
loans, although many students go to the state loan first
because it is easier to acquire. Representative Gara asked
if it was correct then that only students needing more than
$13,000 would require this loan. He also asked if everyone
can receive the full $13,000 value of federal aid. Ms.
Barrans replied it varies depending on the student's year in
school and whether they were a dependent of their parents or
independent. Representative Gara remarked that there was a
small group of students who may not receive enough in
federal loans or do not have a credit history to get the
state loan.
2:07:50 PM
Representative Gara thought there should be a small
supplemental loan program for those students who had
exhausted their federal loans, but who did not qualify for
the state loans. Ms. Barrans replied that there will be a
better picture after the new loans are implemented should
this bill pass. The question remains to either make a change
to the loans or simply forgo the loans in the future. She
suggested that the federal plus program is available for
students who have a co-signer that does not meet the credit
worthy standards for the state program.
2:09:28 PM
Co-Chair Hawker opened the discussion to public testimony.
There being none, public testimony was closed.
2:10:09 PM
Representative Austerman commented if oil returns to a
higher price, this program should come back before the
legislature from an investment by the state into a revolving
loan program that does not require bonding every year to
handle these programs. Representative Crawford reported that
his children were not eligible for any federal programs,
only the state program. He saw the possibility of some
students falling between the cracks and not being eligible
for any sort of loan. He expressed the desire to explore
ways to help those people who may want to go to college but
are held back financially.
2:13:06 PM
Representative Kelly MOVED to ADOPT conceptual Amendment #1:
Page 2, line 3:
Delete: "may"
Insert: "shall"
Co-Chair Hawker OBJECTED.
Representative Gara believed consideration should be given
for a supplemental program for students who would not be
eligible for federal or state loans.
Co-Chair Hawker WITHDREW his OBJECTION. There being NO
further OBJECTION, it was so ordered.
2:15:39 PM
Representative Gara suggested the Department of Revenue
propose a bridge or secondary loan for students who are not
able to qualify for the other loan categories. Mr. Burnett
expressed that within this bill there is the desire to keep
it an investment grade for the state of Alaska. Mr. Burnett
noted that the type of loan Representative Gara referred to
would require an appropriation to a special fund specific
for that purpose. He believed it would not be prudent to do
it simply as a loan. Representative Gara qualified that he
was asking for help and advice on an estimate and structure
for a last resort loan fund concept.
2:18:26 PM
Mr. Burnett noted that he would have to work with Ms.
Barrans to see how that could work. Representative Gara
expressed his concern for the cap on grants the Alaska
Commission on Postsecondary Education is allowed to issue.
The cap is in AS 14.43.420
2:20:37 PM
Co-Chair Hawker questioned the purpose of bill. Mr. Burnett
replied the bill's purpose is authorizing the Department of
Revenue to provide direct investment in the education loan
fund and the credit facility for the student loan
corporation.
2:21:27 PM
Representative Kelly commented that the United State economy
is on its knees because grants have been called loans and
money has been loaned to people who should never have
received it. He wanted Ms. Barrans to remain a loan officer
and not a grant distributor. He emphasized that he looks
directly at the student, not the parents or the parent's
situation.
2:24:06 PM
Representative Fairclough asked Ms. Barrans if there was
money that had been lapsing, not going out under the current
cap. Ms. Barrans replied that the money the legislature
appropriated to the commission was put in as a capital
appropriation. Rather than expend the full $2.5 million in a
single year, it was determined that dispersing half of those
additional funds in 2009 and half in 2010 would be most
beneficial. There was no lapse because those funds do not
lapse. The student loan corporation has been using earnings
from an origination fee account to fund the program to
$500,000 a year for the last 4 years. The new money from the
state and capital budget last year was the first and only
time that program has received general funds. The plan is to
deploy it over a two year period of time. The family income
of the recipient was cut off at $40,000 a year with over
1200 applicants granted from $1,000 to $2,000. Co-Chair
Hawker reminded the committee they were straying from the
bill. Representative Fairclough acknowledged she is
preparing for a possible amendment on the floor. Her
reaction to taking the cap off is that less people would
qualify for the program if more money was given out to a
targeted group of students. She questioned if the program is
limited by funds or the cap.
2:27:14 PM
Ms. Barrans replied that when the need based grant program
was designed that concept informed the design where the cap
is $2000 a year; $1000 as a base grant or $2000 for academic
performers or certain high needs categories. The old state
program was very difficult to get general funds from one
year to the next for the grant program. The concern
regarding a high cap would be that large grants would be
given to 100 students, instead of reasonably sized grants to
up to a thousand students.
2:28:24 PM
Ms. Barrans explained the fiscal note speaks to the costs
the Department of Revenue expects to incur. The amount in
the fiscal note starting in FY2010 is $20,000.
2:29:56 PM
Co-Chair Hawker noted when putting both listed fiscal notes
side by side, the Department of Revenue has their $20,000 in
FY2010 appropriation and then the student loan corporation
has $20,000 a year for five years. Co-Chair Hawker asked for
an explanation. Mr. Burnett explained that the Department
appropriation in FY2010 is an interagency receipt which is
already appropriated in the RSA. Co-Chair Hawker believed
Mr. Burnett intends to conduct a transaction for the
authority granted under this bill during FY2010. Mr. Burnett
agreed. Co-Chair Hawker continued that beyond that it will
be a "depend" situation. Mr. Burnett agreed. Co-Chair Hawker
reported that both fiscal notes should be changed to
indeterminate fiscal notes. Ms. Barrans agreed that
modification could be made. Co-Chair Hawker directed that
both fiscal notes be treated as indeterminate fiscal notes.
2:32:29 PM
Representative Austerman MOVED to report CSHB 172 (FIN) out
of committee as amended with amended fiscal notes and
individual recommendations. There being NO OBJECTION, it was
so ordered.
CSHB 172 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and new fiscal notes from the
Department of Education and the Department of Revenue.
2:33:37 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| 07 HB90 AIDEA Description of Bonds Terms.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 90 |
| 03 HB90 0043-CED-AIDEA-12-12-08.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 90 |
| CSHB 90 - LC Sectional Analysis.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 90 |
| Gov Transmittal Letter HB90.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 90 |
| HB172-DOR-TRE-3-11-09 revised.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| HB172 Testimony 31309.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| HB172 Sponsor Statement.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| HB172 Sec Analysis.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| HB172 Loan Funding Articles.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| HB172 ASLC Background 31309.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| ASLC gov memo.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| Charter Ltr of Support.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| HB172-DOR-TRE-3-13-09 revised.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| HB172-EED-ACPE-03-13-09.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |
| Ltr. to Reps. Hawker and Stoltze 02.26.09.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 90 |
| Stoltze 031309.pdf |
HFIN 3/17/2009 1:30:00 PM |
HB 172 |