03/31/2009 01:30 PM House FINANCE

HOUSE BILL NO. 184                                                                                                            
     "An Act relating to the debt authorization of the                                                                          
     University of Alaska."                                                                                                     
                                                                                                                                
Representative  Mike Kelly, the  bill sponsor, proclaimed  HB
 as  an administrative  bill that  his staff member  would                                                                   
explain.                                                                                                                        
                                                                                                                                
DEREK  MILLER, STAFF,  REPRESENTATIVE  KELLY, announced  that                                                                   
the  HB  184  adjusts  the current  bond  debt  cap  for  the                                                                   
University of Alaska to reflect  today's construction prices.                                                                   
Current  Alaska Statute  allows the University  of Alaska  to                                                                   
borrow   money,  issue   debt,   or  enter   into   long-term                                                                   
obligations  for   the  purchase  of  facilities,   goods  or                                                                   
services without having to provide  notice to the legislature                                                                   
as long as the annual debt service  payment doesn't exceed $1                                                                   
million set  in 1990. HB 184  bumps up the threshold  to $2.5                                                                   
million    to   reflect    today's    construction    prices.                                                                   
In 1990,  $1 million in annual  debt service was the  cost of                                                                   
financing  a   $15  million  capital  project.   Taking  into                                                                   
consideration  construction   inflation  in  Alaska,   a  $15                                                                   
million capital  project build in  1990 would cost  about $40                                                                   
million today.  Annual debt  service on  $40 million  is $2.5                                                                   
million assuming a 4.5% interest  rate and a 25-year straight                                                                   
line amortization.  Mr. Miller signified that  the University                                                                   
has had  a history  of being excellent  stewards of  debt and                                                                   
possess  a   Moody's  Investor   Service  Aa3  rating.   This                                                                   
indicates  a  safe  risk  with  low  risk  for  failure.  The                                                                   
University's current amount of  outstanding debt is less than                                                                   
half of the board of regency's  policy limit. This bill is an                                                                   
administrative  action that  eases the  burden of  compliance                                                                   
with the statute for smaller bond  issues. Mr. Miller noted a                                                                   
concern on how this would affect  the university's ability to                                                                   
bond  a  new   facility  without  legislative   approval.  He                                                                   
referred to  an email  that expressed this  is not  a receipt                                                                   
authority, but  a separate secondary authority  as it relates                                                                   
to bonding  of receipt authority  that the legislature  gives                                                                   
the university.  (Email-Myron J. Dosch, March  23, 2009, copy                                                                   
on  file).  Mr.  Miller  pointed out  the  zero  fiscal  note                                                                   
attached  to the  bill and  the  letter of  support from  the                                                                   
university.                                                                                                                     
                                                                                                                                
Co-Chair   Hawker   clarified   that  the   legislature   was                                                                   
increasing the cap  on the annual payment the  university may                                                                   
enter into a debt agreement from  $1 million to $2.5 million.                                                                   
He referred  to line  11, that  any project  that is  so debt                                                                   
financed  must have  "…been approved  by  the legislature  by                                                                   
law." This  is not  a cap  where the  University can  go bond                                                                   
without  coming to  the legislature's  approval. This  simply                                                                   
gives the university  latitude to deal with  smaller projects                                                                   
without  having to  confirm specific  bonding authority  with                                                                   
the legislature.                                                                                                                
                                                                                                                                
Representative  Kelly  replied  that  was  correct.  Co-Chair                                                                   
Hawker  gave his  complete support  and  endorsement of  this                                                                   
proposal.                                                                                                                       
                                                                                                                                
Representative  Fairclough interjected  that this bill  would                                                                   
allow  the university  to enter  into  lease agreements.  The                                                                   
university  red  book  indicated that  leasing  capacity  had                                                                   
exceeded the  dollar amount for  several different  pieces of                                                                   
property.                                                                                                                       
                                                                                                                                
2:29:31 PM                                                                                                                    
                                                                                                                                
Representative  Fairclough  noted  that  the  university  has                                                                   
exceeded  that leasing  capacity in Fairbanks  so this  would                                                                   
take it off the radar screen.                                                                                                   
                                                                                                                                
MYRON DOSCH,  CONTROLLER, UNIVERSITY OF ALASKA  testified via                                                                   
teleconference that he was available for questions.                                                                             
                                                                                                                                
Vice-Chair  Thomas  asked if  it  was  true that  with  added                                                                   
buildings  there  would  be added  overhead  and  maintenance                                                                   
costs.  Representative Kelly  responded that  was true.  Once                                                                   
the project is  approved, this bill would allow,  for smaller                                                                   
issues, bonding that would take  care of it, but it would not                                                                   
change  the  permission  nor  does it  change  the  board  of                                                                   
regents  debt cap  for the  total  system. Vice-Chair  Thomas                                                                   
wondered if  that would be  smaller buildings  or maintenance                                                                   
on  buildings  or  would  all  the  money  be  spent  on  one                                                                   
building. Representative  Kelly replied that the  original $1                                                                   
million covered  construction which  would be $15  million in                                                                   
todays non-adjusted for inflation dollars.                                                                                      
                                                                                                                                
2:32:03 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Thomas  responded  that  this would  add  to  the                                                                   
overhead and the university must  be cautious. Representative                                                                   
Fairclough asked  Mr. Dosch what buildings are  exceeding the                                                                   
obligation  capacity at  the  university.  Mr. Dosch  replied                                                                   
that the  two facilities in the  university red book  are the                                                                   
UAF Life  Sciences Innovation  and Learning Facility  and the                                                                   
UAF  Energy Technology  Building. Each  building has  receipt                                                                   
authority  that is  over  $15  million based  on  how it  was                                                                   
requested.  If this  was debt  financed,  this statute  would                                                                   
apply and  would require  the university  to do the  specific                                                                   
things  notified in  this statute,  which is  the notice  and                                                                   
specific approval.                                                                                                              
                                                                                                                                
Co-Chair Stoltze  reported that the zero fiscal  note reports                                                                   
that HB  184 increases the  debt authorization level  for the                                                                   
University  of  Alaska  and  is not  anticipated  to  have  a                                                                   
measurable fiscal impact on the university.                                                                                     
                                                                                                                                
Representative  Hawker   MOVED  to  report  HB   184  out  of                                                                   
Committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal  note. There  being NO OBJECTION,  it was                                                                   
so ordered.                                                                                                                     
                                                                                                                                
HB   184  was   REPORTED  out   of  committee   with  a   "no                                                                   
recommendation" and with a previously  published fiscal note:                                                                   
FN1 (UA)