04/15/2003 01:40 PM House FIN

HOUSE BILL NO. 256                                                                                                            
                                                                                                                                
     "An Act relating to a dividend payment to the state                                                                        
     made by the Alaska Housing Finance Corporation each                                                                        
     fiscal year; and providing for an effective date."                                                                         
                                                                                                                                
DAN  FAUSKE,  EXECUTIVE  DIRECTOR,   ALASKA  HOUSING  FINANCE                                                                   
CORPORATION  (AHFC),  DEPARTMENT   OF  REVENUE  testified  in                                                                   
support of  the legislation and  provided information  on the                                                                   
bill's  history.   He  explained  that  AHFC entered  into  a                                                                   
transfer plan agreement  with the state of Alaska  in 1995/6.                                                                   
The agreement  specified an annual  transfer of  $103 million                                                                   
or an amount  not exceeding prior  year net income.   He went                                                                   
on to explain that over recent  years, AHFC had begun selling                                                                   
bonds  on  behalf  of  the  state  to  support  debt  service                                                                   
payments.   He  noted that  of  the $103  to be  paid to  the                                                                   
State, $50  million was used  to service debt  on outstanding                                                                   
bonds,  and  $53  million  went  to  support  AHFC's  capital                                                                   
budget.                                                                                                                         
                                                                                                                                
Mr. Fauske  noted that in  recent years corporate  income had                                                                   
declined due to [low] interest  rates and the market economy.                                                                   
He observed  that loan activity  was strong, but  pointed out                                                                   
that  interest   earnings  had   decreased  by  nearly   four                                                                   
percentage points.  He explained  that when the transfer plan                                                                   
was devised,  it was based on  a six percent  return, whereas                                                                   
currently the return was 1.5 percent.                                                                                           
                                                                                                                                
Mr. Fauske highlighted  that more and more Alaskans  were now                                                                   
becoming homeowners  since interest  rates were  so low.   He                                                                   
recognized that  the corporation needed to take  into account                                                                   
declining  interest rates in  respect to  the amount  paid by                                                                   
AHFC to  the State.   He noted that  the board had  submitted                                                                   
$75.6  million  as   its  dividend  in  FY   03,  since  that                                                                   
represented  its  net  income   and  was  prescribed  by  the                                                                   
transfer  plan.    He  also  noted   that  negotiations  were                                                                   
underway to arrive at a plan to  bring the dividend up to the                                                                   
level expected by the State.                                                                                                    
                                                                                                                                
Mr. Fauske stated  that the purpose of the bill  was to bring                                                                   
the  AHFC dividend  in  line  with government  needs  without                                                                   
affecting bond  ratings.  He  explained that the  legislation                                                                   
proposed an increased payment  of 95% of net income, followed                                                                   
by  a gradual  decline in  payment levels  until FY  08.   He                                                                   
noted  that  the  plan  had  been  discussed  favorably  with                                                                   
investment bankers.  He pointed  out that the rating agencies                                                                   
must be comfortable  with arrangements in order  for banks to                                                                   
invest in Alaska bonds.  He added  that the majority of bonds                                                                   
would be paid off  on June 1 of 2006, making  the corporation                                                                   
debt free  in the next two  fiscal years.  He  concluded that                                                                   
the bill would  improve Alaska's bond ratings  and strengthen                                                                   
the economy.                                                                                                                    
                                                                                                                                
Co-Chair   Harris  asked  whether   the  dividend   guarantee                                                                   
proposed by the  bill would in any way threaten  the solvency                                                                   
of the corporation.                                                                                                             
                                                                                                                                
Mr. Fauske clarified  that the corporation would  continue to                                                                   
approach the  legislature with  its appropriation needs.   He                                                                   
noted that AHFC's  capital projects were greatly  assisted by                                                                   
last year's legislative decision  to allow AHFC to sell bonds                                                                   
to  gain  capital.   He  confirmed  that  AHFC  would  remain                                                                   
financially  sound as  long as the  legislature continued  to                                                                   
consider  the  corporation's  business  needs  on  an  annual                                                                   
basis.                                                                                                                          
                                                                                                                                
Representative  Foster   MOVED  to  report  HB   256  out  of                                                                   
Committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal  note.  There  being NO OBJECTION  it was                                                                   
so ordered.                                                                                                                     
                                                                                                                                
HB  256  was REPORTED  out  of  Committee  with a  "do  pass"                                                                   
recommendation   and  one  new   zero  fiscal  note   by  the                                                                   
Department of Revenue.