Legislature(2011 - 2012)HOUSE FINANCE 519
03/20/2012 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB261 | |
| HB196 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 196 | TELECONFERENCED | |
| + | HB 261 | TELECONFERENCED | |
| += | HB 9 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL 196
"An Act relating to the power project fund and to the
bulk fuel revolving loan fund; establishing a bulk
fuel loan account and making the bulk fuel loan
account and the bulk fuel bridge loan account separate
accounts in the bulk fuel revolving loan fund;
providing for technical assistance to rural borrowers
under the bulk fuel bridge loan program; relating to
the administration and investment of the bulk fuel
revolving loan fund by the division in the Department
of Commerce, Community, and Economic Development
responsible for community and regional affairs; and
providing for an effective date."
Representative Edgmon introduced the legislation. He
explained that the bill took two bulk fuel loan programs,
housed in the Department of Commerce, Community and
Economic Development (DCCED) and administered them from one
location. The Bulk Fuel Revolving Loan Fund was
administered by the Alaska Energy Authority (AEA) and the
Bulk Fuel Bridge Loan Program resided in the Division of
Community and Regional Affairs. He noted that consolidating
the programs administration was a recommendation in the
"Governor's Report on Energy" and from AEA. The
consolidation made both programs more accessible for the
public. Applicants that were turned down for the revolving
loan would not have to re-apply for the bridge loan. He
questioned the fiscal note by the division.
Ms. Ayers reported that the Division of Community and
Regional Affairs (DCRA) would perform all of the
underwriting, and work directly with the borrowers for the
consolidated loan fund. The Division of Economic
Development (DED) would provide loan servicing.
SCOTT RUBY, DIRECTOR, DIVISION OF COMMUNITY AND REGIONAL
AFFAIRS, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT (via teleconference), spoke to the new fiscal
note (FN CED 3/19/12). He determined that the cost to
administer the consolidated programs would increase to
$216.6 thousand for FY 2013 and $209.8 thousand in FY 2014.
The AEA currently administered the loans at a cost of $53.6
thousand dollars. Presently, within the division an
existing employee was servicing the small number of bridge
loans without charging the personnel costs to the program.
The consolidated loan program increased the workload from
administering 12 to approximately 70 loans. The division
was not able to perform the additional work without an
additional position. The division had an RSA (reimbursable
services agreement) with the Division of Economic
Development for invoicing and loan accounting. The DED
required and extra position to provide more of the services
to DCRA with the increase in loans. He noted that the new
fiscal note (FN CED 3/20/2012) for DED was funded through
inter agency receipts.
Vice-chair Fairclough questioned why additional funding was
needed considering the work was being consolidated.
Representative Edgmon had the same question. He indicated
that AEA had a staff position dedicated half-time to
service the loans that would transfer to DCRA. He mentioned
confusion with the fiscal notes. He was aware of a fiscal
note that appropriated a local government specialist at a
range 17 to DCRA and an appropriation to DED for an
Accounting Tech II. The DCRA contracted out technical
services, credit checks, and loan counseling with a third
party. The loans primarily helped small communities with
populations less than 2000.
Vice-chair Fairclough asked if the state was using existing
technology such as online grant applications to assist the
process. Mr. Ruby answered, "no." He stated that people can
download the application online and most return it by fax
for review. The bulk fuel bridge loan typically responded
to emergency type situations. Recently, two villages
applied because less than seven days' worth of fuel was
available. The third party contractor was instrumental in
helping the communities with a high credit risk apply for
and manage the loan.
10:21:03 AM
Vice-chair Fairclough remarked that DCRA planned to manage
the loans much differently than AEA and still questioned
the fiscal notes.
Co-Chair Thomas asked if the same clients applied for the
loan each year. He felt that the personal services request
in the fiscal note was problematic.
Vice-chair Fairclough believed that the use of technology
via online applications, where information was recalled for
future applications could streamline the process.
Representative Gara thought that DCRA proposed "the worst
example of streamlining." He suggested that the
consolidation should transfer to AEA. He recommended that
AEA transfer the half time position to DED for a "net zero
cost." He argued that streamlining created efficiencies
that required fewer personnel. He questioned the need for
more personnel. Ms. Ayers responded that the challenge was
turning one operating unit into two. The division did not
inherit 100 percent cost savings from AEA because only a
half time position was dedicated to service its portion of
the loans. The division's workload increased from servicing
12 accounts to 70 accounts. She stressed the need for
additional staff to simultaneously respond to both loan
populations. Time sensitivity was a factor in processing
the bridge loans. Often a fuel barge was waiting to deliver
fuel.
10:25:41 AM
Representative Edgmon responded to Representative Gara's
suggestion to transfer the consolidated loan servicing to
AEA instead of DCRA. He elaborated that AEA was strongly
favored when the idea first came forward. The switch to
DCRA was made to utilize DCRA's seven local government
specialist offices spread throughout the state. The
specialists would work with the third party contractor;
Rural Alaska Fuels. The consolidation was intended to
streamline the process and improve the services for the
community. The process was supposed to be simplified for a
community to apply for the bulk fuel revolving loan and if
turned down the application would quickly be processed as a
bridge loan. He remained perplexed why extra personnel were
necessary. He emphasized that he did not receive a "clear
response" from the department and that it was not his
intent to introduce the bill with extra personnel costs.
Representative Costello asked why the choice was made to
shift the loan services to DCRA. She mentioned that the
budget process was focused on departmental missions. She
relayed that DCRA was the only division with a
constitutional mandate; Article 10, Section 14, which
mandated a report on the status of communities. The mission
of AEA was to reduce energy costs in the state. She thought
that AEA was the more appropriate division for the loan
consolidation. Representative Edgmon commented that one of
the reasons that DCRA was chosen over AEA was that AEA was
taking on more responsibilities including the Susitna
project. The premise was that with the DCRA offices located
in rural parts of the state, its capabilities were better
suited to assist smaller communities.
Representative Costello was informed that communities were
filling out an application for the first loan process and
had to re-apply for the bridge loan from scratch if turned
down. She noted that the board for Alaska Industrial
Development and Export Authority, (AIDEA) was the same for
AEA, which the commissioner of DCCED was a member. She
queried if the problem was ever brought to the board for
resolution. Ms. Ayers believed that discussions were held.
She reiterated that the loans were time sensitive and
required focus and responsiveness to keep the process
moving forward.
10:31:43 AM
Representative Wilson asked for clarification on the number
of loans. She deduced that the increase from 12 to 70 loans
was an actual increase of 58, which serviced the same
communities every year. Ms. Ayers stated that was correct
and added that some communities applied several times a
year.
Representative Wilson felt that the division could educate
the communities to be more proactive and apply for the
loans before it was an emergency situation and deal with
the communities on a more regular basis. She concurred with
the other committee members' call for more efficiency,
elimination of repetitive paperwork for the communities,
and questioned the need for additional staff. Ms. Ayers
hoped that the department would achieve efficiencies
through consolidation of the loan program by DCRA working
with the borrower on a more regular basis.
Mr. Ruby revealed that the department was proactive in
getting the communities to apply for loans. The department
implemented a plan called "fuel watch." The department
contacted every bulk fuel purchaser in rural Alaska to
determine the status of payments. He mentioned that 8 to 10
communities each year apply late for various reasons.
Currently, there were 49 loans to process and some of the
communities had to fly in fuel. Each time a community
needed more fuel another loan was necessary. Only one
approval process was required, but arrangements for
delivery were made, invoices were processed, and repayment
schedules developed for each refill. A lot of the staff
time was spent working with the communities on cash flow
issues. Most of the work within DED was not application
oriented but appraising cash flow and developing procedures
to repay the loan. Representative Edgmon discussed the
larger issues embedded in the situation. Frequent turnover
of city administrators and personnel in smaller communities
was a problem. The application process was complex and
detailed financial statements were necessary. The high cost
of fuel created challenging circumstances and cash flow
problems.
10:38:27 AM
Co-Chair Thomas OPENED public testimony.
DEL CONRAD, CEO, RURAL ALASKA FUEL SERVICES (via
teleconference) testified strongly in favor of the bill. He
reported that during the first six years of the bridge loan
program his company managed the program. The program was
initially set up as a grant. The funds were given to the
contractor under the provision that any unused funds were
returned to the state. The company reviewed the application
and forwarded a recommendation to the department. After
approval from the department the company issued a check to
the fuel vendor, issued monthly invoices, and processed
collections. The company also interfaced with the
communities and would work with them on pricing and
collection. He explained that the program was changed to a
loan program approximately two years earlier and state
involvement increased. He believed from experience that
additional staff was unnecessary. He elucidated that much
of his work with financially distressed communities
involved establishing a budget and pricing. He felt that
combining the programs eliminated duplication for both the
state and the communities. The focus of DCRA was on
sustainable communities and thought that was the
appropriate place to administer the loans. The local
government specialists were familiar with the communities
and understood the issues to better serve economically
distressed communities in contrast to AEA that acted as a
bank.
10:41:58 AM
MEERA KOHLER, PRESIDENT AND CEO, ALASKA VILLAGE ELECTRIC
CO-OP (via teleconference), spoke in support of the
legislation. She discussed that several years earlier
acting as a member of the Alaska Village of Council
Presidents had chaired a subcommittee on rural fuel issues.
The subcommittee had determined that the communities'
credit risk was the largest deterrent for the community to
receive timely fuel delivery with better pricing. She
revealed that part of the problem was the formidable loan
application process. She was in favor of consolidation. She
reiterated that AEA was a banking institution. She believed
DCRA was a better agency to handle the program. The
division developed the inroads and relationships with
villages that could enable the villages to become more
financially sustainable. She opined that HB 196 represented
a move in the right direction.
Co-Chair Thomas CLOSED public testimony.
HB 196 was HEARD and HELD in committee for further
consideration.
10:45:25 AM
AT EASE
10:46:33 AM
RECONVENED